Nikkei could double with
broad corporate governance reform: Oasis
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[July 26, 2017]
By Tomo Uetake
TOKYO (Reuters) - Japan's Nikkei share
average could double in five years if authorities can push ahead with
corporate governance reforms but the country has still long way to go,
the head of Hong Kong-based hedge fund Oasis Management said.
Likening the reform process to a marathon, founder and chief investment
officer Seth Fischer, who's an avid runner, said Japan has finished only
about five kilometers of the race.
"There's been progress... and we see momentum. If you made good time in
the first 5K, it doesn't mean that you're satisfied," he said. "You're
happy that you made a good time, but you have a long way to go."
Corporate governance reform -- pushing companies to increase outside
board members and encouraging more dialogue between shareholders and
company management -- has been a key part of Japanese Prime Minister
Shinzo Abe's drive to revive the economy, along with monetary and fiscal
stimulus.
"With better governance, I believe comes increased margins, much more
efficient use of balance sheets, which would dramatically increase ROEs
(return on equity), which would, I believe, more than double the Nikkei
over the next three to five years," Fischer said.
The Nikkei 225 index hit a near two-year high of 20,318 in June and
recently has been hovering above 20,000. But it is still nearly one-half
of its 1989 peak of 38,957.
One reason behind the poor performance is Japanese companies' low return
on equity, which stands at around 8 percent.
"We need to get to the global standard of ROEs, which is 15 to 18
percent," Fischer said. "There's no reason that we can't get there. It
could happen."
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Seth Fischer, CIO of Oasis Capital Management, poses at Reuters
Financial Regulation Summit in Hong Kong, China May 20, 2016.
REUTERS/Bobby Yip/File Photo
Oasis Management differentiates itself from more aggressive activist
funds by labeling itself "an engaged shareholder" that seeks a more
cooperative, rather than confrontational, approach to management.
Fischer said Oasis owns Toshiba Corp, the troubled electronic and
nuclear conglomerate because he sees limited downside risk after the
stock has fallen so much in recent years.
Toshiba's plan to sell its prized chip business to cover nuclear losses
is in limbo due to various complications.
Some investors see Japanese government's involvement in Toshiba's
restructuring as going against the spirit of corporate governance
reform, but Fischer said he wasn't necessarily troubled by that.
"I'm a big advocate of shareholder rights obviously and I'm prepared to
spend real money and time on maximizing shareholder value," he said.
"But when it comes to national interest involved, I don't have a problem
with the government doing it."
(Reporting by Tomo Uetake; Editing by Richard Borsuk)
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