Category: Governance

In January 2024, Japanese stocks rose sharply as overseas investors bought Japanese stocks for the first time since June 2023. There has been no change in the composition of Japanese equities driven by overseas investors, who account for over 70% of the TSE’s trading volume. Meanwhile, since the TSE’s request at the end of March 2023, listed companies have been struggling to raise their stock price valuations (P/B). We have also seen an increase in disclosures from listed companies that seem to be expecting overseas investors to buy their shares. In this article, we will focus on the ratio of foreign shareholdings and analyze the trends in companies in which overseas investors invest. The contents of this article should be of interest not only to overseas investors, but also to listed companies.

The Metrical universe of 1,822 companies (as of January 2024) is divided into five groups (30% or more, 20% or more but less than 30%, 15% or more but less than 20%, 10% or more but less than 15%, and less than 10%) based on foreign shareholding ratio and analyzed for each category. The median foreign shareholding ratio is 15%; companies with 15% or more can be said to have higher foreign shareholding ratios. Also, as discussed in my previous article “Takeover Defense Measures and Foreign Shareholder Ratio,” there is a sort of threshold at 30%. When the foreign shareholding ratio exceeds 30%, it becomes more difficult for the company to secure 1/3 of the special resolution at the shareholders’ meeting, and thus the influence of foreign shareholders becomes stronger, which in turn can be expected to improve the company’s management.

The February stock market continued to be strong from the beginning of the month.
In February, the CG Top 20 underperformed both the TOPIX and JPX400 stock indices.

Supported by high overseas stock market prices in the U.S. and other countries, the Japanese stock market was also solid throughout the month, with the Nikkei 225 hitting its all-time high in 1989 on February 22. The stocks continued to be firm toward the end of the month.
The TOPIX and JPX400 indexes gained 4.83% and 4.75%, respectively, in February, while the CG Top20 stocks underperformed against both indexes, dipping -0.97%.

The composites of CG Top 20 stocks has been replaced as of July 1.
Wacom (6727), K’s Holdings (8282), Eisai (4523), NSD (9757), and Trend Micro (4704) were new additions, while Ebara Corporation (6361), Orix (8591), United Arrows (7606), Tokyo Gas (9531) and Hoosiers Holdings (3284) were removed. Details of the component stocks are shown in the table below.

Metrical provides monthly corporate governance assessments of approximately 1,800 companies, primarily prime market listed companies. This year, continuing on from last year, we would like to see how much progress has been made in corporate governance initiatives by listed companies over the past year.

We analyzed how much the 1,788 companies in the comparable Metrical universe improved in each evaluation category between December 31, 2022 and December 31, 2023. The table below shows the Metrical CG score, which is the overall corporate governance score, the average ROE and ROE over the past three years, the change in Tobin’s Q and foreign shareholding ratio in December 2022, December 2023, and change from 2022 to 2023, and the mean and median values.

Based on interest from participants overseas, BDTI held its English Director Boot Camp via teleconference on January 19th. The day-long intensive course was attended by highly-experienced and highly interactive participants all the way from Hong Kong, Papua New Guinia to Europe. The participants heard lectures about corporate governance by Nicholas Benes and there were lots of interactive discussion and Q&A about real-life situations on Japanese boards, and how to handle them. You get even more in the additional materials we provide in your thick binder.

The ratio of independent directors is on the rise, with the number of companies with a majority of independent directors (more than 50%) increasing to 280 out of the 1,781 companies in the Metrical Universe at the end of September 2023. I would like to examine the characteristics of companies with a majority of independent directors.

The chart below shows the number of companies in the Metrical universe with a majority of independent directors (more than 50% independent directors). Since there are less than 1,800 companies in the Metrical universe, the percentage of companies in the universe with a majority of independent directors (more than 50%) has just risen to 15.7% as of the end of September 2023, so it will take some time before a majority of companies have a majority of independent directors on their boards. It is likely to take some time before the majority of companies have a majority of independent directors on their boards. However, the number of such companies is gradually increasing.

In October, the stock market was in step with the U.S. stock market, which rose and fell in response to changes in U.S. long-term interest rates, and after a decline at the beginning of the month and a rebound in the middle of the month, the stock market was in a selling trend toward the end of the month.
The CG Top 20 index outperformed the TOPIX and JPX400 indexes for the second consecutive month in October.