Equity is the least protected asset in a capital structure. The rights of shareholders are basically limited to the following three types of rights:

1) Rights to receive dividends as declared by the board of directors of the corporation
2) Voting rights on issues that affect the corporation as a whole
3) Rights to share in the proceeds recovered when the corporation liquidates its assets

The first point is the most important. Dividends are available when companies make a profit. If managers are confident of their business’s growth, they will re-invest in their business, and over time the share price will reflect such growth. In any case, HC believes that a company’s ability to produce dividends is the key factor of equity investment.

Here are some characteristics of Japanese market.

1. Fourth largest capital markets in terms of number of listed companies

Japan is a large enough market with about 3500 listed companies. HC believes there are a number of corporate events, uncovered or ignored businesses, thereby providing opportunities for security selection.
Number of listed companies (source: WFE, top 12 markets)
*refer to “Equity -1.2- Number of listed companies” graph image on the right side

2. Liquidity

The Japanese market, especially large caps, are very liquid and cost efficient while supporting trading strategies.

3. Dividend yield higher than the government bond (JGB) yield

It has been a while since dividend yields exceeded JGB yields. Before Basel II, the situation corrected itself within a few months, but now financial institutions are no longer core investors.
*refer to “Diviend Yield for 15 years” graph image on the right side

4. Non-Japanese and pension funds dominating Japanese market

*refer to “Net Purchase/Sale by Sector (source: TSE)” graph image on the right side

5. Recovering corporate earnings.

*refer to “Corporate earnings and Stock Market” graph image on the right side
Post Lehman, corporate earnings are recovering and corporate deleveraging is almost complete. Considering the above mentioned characteristics, HC is confident in selected equity strategies including the following:

  • Selective concentrated strategies (small & medium cap)
  • Value up strategies
  • High-dividend strategies
  • Trading strategies (large cap)

Page Top