Europe’s biggest money manager is seeking opportunities in Japan’s cheap construction stocks as the sector reduces cross-shareholdings and increases returns for investors.
(Bloomberg) — Europe’s biggest money manager is seeking opportunities in Japan’s cheap construction stocks as the sector reduces cross-shareholdings and increases returns for investors.
The industry used to reflect some of the “worst points” of the country’s markets, but it seems to have changed in the past two or three years, Naofumi Harukawa, head of Japan target strategy under Amundi SA’s Japan unit, said in an interview this week.
The asset manager’s views echo those of some hedge funds who are agitating for industry change as Japan’s equities hit a three-decade high, bringing the Tokyo Stock Exchange’s campaign to raise valuations of some listed companies into focus.
Activist investor Oasis Management Co. submitted a shareholder proposal in May for buybacks and increased dividends to Kumagai Gumi Co., one of the firms involved in Taipei 101, Taiwan’s tallest building. Silchester International Investors and Dalton investments are also pushing for bigger returns from contractors such as Obayashi Corp. and Toda Corp.
Builder stocks have been one of the forgotten names in Japan’s markets. The Topix Construction Index has been largely unchanged over the past five years, while the broader benchmark rallied about 30% in that period.
Activist Proposals
The number of shareholder proposals by activists reached a record high so far in 2023, according to data from consultancy IR Japan.
Some domestic investors in Japan are also part of that drive. The family office of Nintendo Co.’s founder announced a tender offer to Toyo Construction Co. last year and recently pushed for a management reshuffle at the marine engineering operator.
Read: Hedge Funds Pushing for Japan Returns Get Help From Tokyo Bourse
While some companies that are trading below book value have soared following the push from the exchange, drawing attention from investors, the overall performance has been mixed. The median year-to-date return on stocks trading below a price-to-book ratio of 1 that are listed on the Tokyo Prime market is around 16%. That’s less than the Topix’s 21% gain.
The TSE’s campaign has put the spotlight on such ratios, Harukawa said. Amundi’s Japan Target Strategy has ¥90 billion ($641 billion) of assets under management, and has been focusing on price-to-book ratios since its inception in 2000. One of the funds has beaten 80% of peers year-to-date, according to data compiled by Bloomberg.
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