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Top managers: the ins and outs of Japan’s governance shift

Top managers: the ins and outs of Japan’s governance shift

Citywire rated fund managers welcome changes to Japan’s investment culture and believe the family-run business hegemony could finally be cracked in the country.

Commenting on Prime Minister Shinzo Abe’s efforts to improve the business relationship between companies and shareholders, there was a split on whether to dive in now or wait for more tangible outcomes to be realised.

Citywire AA-rated Joel Le Saux, who runs the Oyster Japan Opportunities fund, said the adoption of Japan’s Corporate Governance Code, which legally requires companies to build strong business-to-shareholder relationships, is the most influential legislation change for Japan’s investment development.

‘Japan has seen transformative change in corporative governance structures with the adoption of Japan's Corporative Governance Code in June 2015. New dynamics, in areas such as company disclosure and the appointment of external directors, are cultivating a more shareholder friendly environment for investors.’

Despite noticeable changes over the past two years, Le Saux urged investors not to be hasty with Japanese investment. He said: ‘Investors must understand the context: this is a long term process in a country with an engrained state-influenced corporative culture.’

Meanwhile, Citywire A-rated Archibald Ciganer, who runs the T. Rowe Price Japanese Equity fund, said Abe’s change was positive and structural improvements were never easy.

‘The Shinzo Abe-led Liberal Democratic Party has successfully broken the long-held tradition of policy inertia via its attempts jump start the economy and equity market with the magnitude of its policy intent.’

Ciganer has seen a significant trend of change in the past six months, especially with companies defying sceptics’ expectations. ‘Japanese corporate earnings are likely to exceed global peers,’ he added.

While echoing Le Saux’s overall positivity, Ciganer said it was time to strike on certain areas of the Japanese market, particularly those tied to its longer-term evolution. He named IT and machinery sectors as particularly attractive.

Global equity specialist Louise Dudley of Hermes Investment Management agreed that Abe’s efforts to alter the conventional business-centred ideology of Japan is the main contributor to the stabilisation of investment in Japan.

‘Wide-ranging reform continues in Japan following Prime Minister Shinzo Abe’s ongoing rule in the nation’s upper house. The majority mandate has contributed positively to the outlook for the Japanese equity market and GDP in general we expect this to persist,’ said Dudley.

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