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Toshiba: probe into government collusion a warning to foreign investors in Japan

Toshiba’s top executives once wrote in an email asking government officials to “defeat” hedge funds. Demand reported in an independent survey of shareholder consignments shows why shareholder activists rarely succeed in Japan.

Is Report on page 147 Learn more about the long-running battle between Japanese technology groups and foreign shareholders, including the Harvard Foundation and Singapore-based Effissimo. Toshiba concludes that it has colluded with the government to thwart foreign investors. Toshiba says it will review the report.

Toshiba’s shareholders are not the only ones who struggled to manage Japanese companies. Most battles end in costly defeats. Shareholder campaigns have only been approved four times in the history of local businesses.

Foreign investors can be calm in other ways as well. Last May, Tokyo tightened regulations on foreign shareholders. Government approval must be obtained before purchasing at least 1% of the hundreds of local shares, including Toyota and Softbank. The list and how its exemption was chosen lacks transparency.

Still, foreign buyers should acknowledge the recent rise in Japan’s stock market, which has pushed Toshiba’s stock price up 43% over the past year. This has reversed many years of growing interest. As expectations for Abenomics’ success diminished, foreign investors sold a net $ 130 billion worth of local stock in the five years to 2019.

Now Japan is at risk of driving them away. Foreign investors make up about 30 percent of the domestic market. This happens as the domestic investor pool gets older. Individuals over the age of 65 own half of the money held in their local personal financial assets. This demographic group has long preferred bank savings over stocks.

Many Japanese equities are already traded at discounted prices to global peers — marked down due to weak governance, complex holdings and historically low shareholder returns. Reporting to Toshiba may extend that discount.

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