There are cheap stocks in Japan. This is not new and I am far from the first to mention it. In the cycle of innovators, imitators, and idiots, this approach is one of imitation. There now appears to be an ecosystem that could see the share prices of Japanese companies reflect their underlying value. There is a range of evidence pointing to a multiyear trend of dividends, buybacks, exiting unprofitable business lines, consolidation, and buyouts combined with a diverse set of market participants spurring on this behavior.
In what way? Although to a different end, I think this is similar in impact to HSR in the US market, which is a minor admin burden for investment management businesses.
HSR has a relatively high value threshold, while this applies to any 1% holding and requires approval of the initial stake as well as any changes made to the company or its management. My understanding is that it creates immense barriers for foreign activism in Japanese companies.
If there is a source for your claim that contradicts the guidelines released by the Japanese MoF, linked above and in English, dated April 24 and released in response to push back on the initial plan, would you please share it?
I do not understand the rules applying to any 1% holding, as foreign financial institutions have a blanket exemption on that (slide 3, page 4). As for approvals, there is a straightforward decision making framework for investors and authorities to adhere to such as a detailed definition of a related party (slide 7), 45 days to notify authorities for crossing 1/3/10% thresholds (slide 12), and a response within 5 days if prior notification of certain actions is not a national security concern (slide 14). Those are just some examples, but I think this is not indicative of havoc or an immense barrier.
And to clarify - I am referring to the prior notification requirement for the 1% threshold. 1% and then having 45 days for a post action notification still leaves a lot of flexibility to continue to build a position.
Please correct any errors in my understanding where they may exist, but the slide, as well as other materials state that the exemption to foreign financial institutions only applies so long as they or their associates refrain from becoming a board members, proposing changes in the underlying business activities, accessing private info, or making proposals or demand regarding business activities. The list of selected industries under the scope of this is quite wide as well, stifling activism through a wide swath of their markets.
Slide 14 lays out that they explicitly can do all those things as long as they provide prior notification. Given that this law and the administrative implementation of it are under the Abe government, it doesn't appear a backdoor way of going back on the overarching agenda, but if you interpret it that way then we will have differing views.
One doesn't need to be able to go activist without restriction on every company in a country for activism within a country to be an opportunity, particularly given how this framework doesn't apply to domestic activists, of which there are many.
To the author, I work for a small hedge fund and we started looking at Japanese equities a couple weeks ago. I have read all of your posts and I think you raise some great points regarding the space. I was hoping I could get your contact information to potentially discuss Japanese equities in more detail and bounce some ideas off each other. Thanks for the write ups
The new foreign activist rules will cause havoc
In what way? Although to a different end, I think this is similar in impact to HSR in the US market, which is a minor admin burden for investment management businesses.
Refer to slides 5 and 6:
https://www.mof.go.jp/english/international_policy/fdi/kanrenshiryou01_20200424.pdf
HSR has a relatively high value threshold, while this applies to any 1% holding and requires approval of the initial stake as well as any changes made to the company or its management. My understanding is that it creates immense barriers for foreign activism in Japanese companies.
If there is a source for your claim that contradicts the guidelines released by the Japanese MoF, linked above and in English, dated April 24 and released in response to push back on the initial plan, would you please share it?
I do not understand the rules applying to any 1% holding, as foreign financial institutions have a blanket exemption on that (slide 3, page 4). As for approvals, there is a straightforward decision making framework for investors and authorities to adhere to such as a detailed definition of a related party (slide 7), 45 days to notify authorities for crossing 1/3/10% thresholds (slide 12), and a response within 5 days if prior notification of certain actions is not a national security concern (slide 14). Those are just some examples, but I think this is not indicative of havoc or an immense barrier.
And to clarify - I am referring to the prior notification requirement for the 1% threshold. 1% and then having 45 days for a post action notification still leaves a lot of flexibility to continue to build a position.
Please correct any errors in my understanding where they may exist, but the slide, as well as other materials state that the exemption to foreign financial institutions only applies so long as they or their associates refrain from becoming a board members, proposing changes in the underlying business activities, accessing private info, or making proposals or demand regarding business activities. The list of selected industries under the scope of this is quite wide as well, stifling activism through a wide swath of their markets.
Slide 14 lays out that they explicitly can do all those things as long as they provide prior notification. Given that this law and the administrative implementation of it are under the Abe government, it doesn't appear a backdoor way of going back on the overarching agenda, but if you interpret it that way then we will have differing views.
One doesn't need to be able to go activist without restriction on every company in a country for activism within a country to be an opportunity, particularly given how this framework doesn't apply to domestic activists, of which there are many.
To the author, I work for a small hedge fund and we started looking at Japanese equities a couple weeks ago. I have read all of your posts and I think you raise some great points regarding the space. I was hoping I could get your contact information to potentially discuss Japanese equities in more detail and bounce some ideas off each other. Thanks for the write ups