An update from our investment manager, Chern-Yeh Kwok - 13 October 2020
Japanese equities rose in September as Yoshihide Suga succeeded Shinzo Abe as the 99th Prime Minster of Japan. During the ruling party’s presidential campaign, which effectively decides the new prime minister, Suga emphasized the importance of continuity and stability amidst the pandemic. A number of key political heavyweights within the ruling party were retained in the new Cabinet, with 8 out of 20 ministers being re-appointed, including the Minister of Finance and the Minister of Foreign Affairs. The MSCI Japan Small Cap Index rose more than MSCI Japan Index in the month, following a weaker performance for small caps earlier in the year. The yen continued to strengthen against most major currencies during the month.
In addition to maintaining fiscal and monetary stimulus, Suga commented on his willingness to accelerate deregulation and structural reforms, and to create a new digital agency to promote digitization within the government and the society. He aims to promote consolidation within the small- and mid-sized enterprise and regional bank sectors to help improve their competitiveness, and to induce greater competition among mobile phone carriers to drive down tariffs.
Nippon Telegraph and Telephone announced its intention to privatize its mobile carrier subsidiary NTT Docomo, which we do not hold, in what is expected to be the largest tender offer for a Japanese company. The deal could enable NTT Docomo to lower mobile tariffs further in response to the government pressure, and we are carefully watching developments.
The market sentiment was also helped by the downgrading of caution levels for Covid-19 by a number of regional governments. This included Tokyo Metropolitan Government which lowered its four-level coronavirus alert by one notch from the highest to the second highest. At the national level, a decision was made to add Tokyo to a domestic travel campaign from October. The campaign in which the government partially subsidizes domestic travellers’ costs was launched in July, but Tokyo was previously excluded due to rising number of Covid-19 cases. We expect that there may be waves of infections that could slow the progress of economic recovery – but not lead to significant shutdowns.
In other news, restaurant operator Colowide successfully completed its hostile takeover bid for its competitor Ootoya. While it is encouraging to see a rising number of successful cases of hostile takeover bids, which were seen as culturally taboo in the past, we see room for improvement in terms of protection of minority shareholders’ interests from controlling shareholders in such transactions.