The All-Japan Research Team
April 8, 2013
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The economic stimulus strategy Shinzo Abe outlined in the run-up to Japan's December elections turbocharged a stock market that was already showing signs of a rally and investor enthusiasm for his proposals has helped send equity prices soaring since Abe was swept into the office. The nation's benchmark Nikkei 225 index outperformed all others in the first three months of 2013, surging 19.3 percent and besting the S&P 500 index by more than 9 percentage points.
Much attention has been focused on the monetary easing and infrastructure investment aspects of so-called Abenomics, but there is another element that investors and analysts are watching closely: the promise of structural reforms designed to boost private investment that include, among other factors, increased corporate governance, greater accountability of company executives and boards of directors, and more-flexible labor practices. Many market observers believe this "third arrow" of the prime minister's plan, if successfully implemented, could have far-reaching implications for the Japanese economy.
"The policy that will have the most effect on the currency market is structural reform," notes J.P. Morgan's Tohru Sasaki, who captures third-place honors in the newly added Currency & Foreign Exchange sector on the All-Japan Research Team. "Monetary policy may have some impact on the currency, but any impact is unsustainable in a zero-interest-rate environment," the Tokyo-based strategist says. "Market expectations are important for the foreign exchange market, but expectations do not last a long time if there is no real change in economic structure." What Japan needs even more than inflation, he adds, is increased demand for Japanese goods and services; having the latter will spur the former, but demand will rise only if much-needed structural improvements are implemented and Japanese companies become more competitive.
Takuji Aida, who jumps from runner-up to second place in Economics, is optimistic that such modifications will be introduced. "After the establishment of a stable Abe administration following the lower house [parliamentary] elections, we expect the implementation of economic measures based on a growth strategy that includes deregulation, the picking up of corporate activity and accelerated moves to expand total wages," contends the UBS economist, who is headquartered in Tokyo.
Clients are eager to meet with Japan's corporate leaders to hear their views on the likelihood of change and what it will mean to their respective companies. This year, for the first time, Institutional Investor asked participants in the broader research survey to indicate which sell-side firms provide the best access to chief executives at the companies they cover. Nomura Securities Co. leads the inaugural lineup of Japan's Top Corporate Access Providers, capturing 25 total team positions in the 28 industry sectors and finishing first in 15 of them. Bank of America Merrill Lynch claims second place, with 16 spots (four of which are No. 1); while UBS takes third, with 14 positions (and outperforms its peers in three sectors). Domestic firms round out the top five: Daiwa Securities Group wins fourth place, with 13 spots (and two first-place finishes); and Mizuho Securities Group is the No. 5 firm, with 11 spots (none of which is No. 1). These results reflect the opinions of nearly 320 investment professionals at 175 institutions managing an estimated $528.5 billion in Japanese equity assets.
"Investors regard direct communication with management teams as more important now," observes Nomura's Katsushi Saito, No. 1 in Machinery for a fourth straight year and for the 12th time since 2000 and a member of the inaugural All-Japan Research Team Hall of Fame. "Client interest in a company's strategy and its management team's execution ability, at a time of great economic uncertainty, has been intensifying ever since the financial crisis began."
In December his firm hosted the 15th annual Nomura Investment Forum (also known as the CEO forum) at the Palace Hotel Tokyo. The event attracted nearly 200 corporate participants from across Asia; the chief executive officers of 44 companies delivered presentations.
Money managers' questions for company leaders tend to cover a wide array of topics, Saito observes. Many want to hear firsthand accounts of their strategies, while others want reassurance that managements have the wherewithal to implement their plans, the Tokyo-based analyst says. For many it comes down to a question of confidence: Do these executives truly believe they will succeed?
Fellow Hall of Famer Atsushi Yamaguchi, the top-ranked analyst in Metals for an 11th consecutive year, agrees that personal communication is highly valued. "Investors want to know in which direction a company is headed," says the UBS analyst, who works out of Tokyo. "Managing directors and people at that level can't answer these questions."