TSE Cash Markets

By Roy Leckie, Executive Director- Investment & Client Service, Walter Scott & Partners Limited

At Walter Scott we have a long history of investing in Japan through the Tokyo Stock Exchange (TSE), dating back to 1983 when our firm was established. We have always had significant exposure to Japanese equities, believing that Japanese companies make up an important part of a diversified global equity portfolio.

Walter Scott fully supports the restructuring of the TSE due to take place on 4 April 2022. As a long-term investor in Japanese companies, we believe the changes will help to improve corporate governance and increase the quality of companies in Japan. We congratulate the TSE on their continuing commitment to improving corporate governance.

As foreign investors we are pleased to see the establishment of a new Prime section of the stock market for companies with high standards of corporate governance and a commitment to long-term sustainable growth in shareholder value. We are particularly pleased about the emphasis on constructive dialogue with global investors and we look forward to many fruitful discussions with Japanese management in the future.

These changes are part of a process of corporate governance improvement in Japan which has occurred gradually over the years. The reform process, which gained traction under Prime Minister Shinzo Abe, has included the passing of the 2014 Stewardship Code and the 2015 Corporate Governance Code. By improving the quality of companies listed on the stock market, we hope that the TSE will continue to help mobilise the large pool of domestic savings in Japan and attract more foreign investors.

Our investment team is very familiar with Japan and Japanese companies. Under normal conditions members of our team travel to Japan three or four times each year to meet company management and visit manufacturing facilities, although this has been stopped temporarily due to the Covid pandemic. We also use these visits to catch up with our clients in Japan. However, we have continued to engage with many Japanese companies and clients remotely over the last two years.

We believe the Japanese stock market provides fertile ground for stock picking, offering investors many high-quality companies with strong competitive positions and a commitment to significant investment in R&D. A focus on ‘monozukuri’ (making things) and ‘takumi’ (craftmanship) highlights the passion for manufacturing shared by many companies in Japan. In our opinion, Japanese companies exhibit the characteristics of quality, reliability and innovation which are fundamental for good, long-term investments. Over the years we have invested successfully in a number of world-leading companies in Japan.

The restructuring of the TSE is an important stage on the journey towards higher standards of corporate governance in Japan. We believe this process will underpin the attractiveness of Japanese companies as long-term equity investments. We look forward to visiting Japan and the TSE again in the near future and actively engaging with the management of many more Japanese companies.