Equity

December 20, 2024
by Equity

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 3600 listed companies. HC believes there are a number of corporate events, uncovered or ignored businesses, thereby providing opportunities for security selection.

 

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.

 

4. Non-Japanese and pension funds dominating Japanese market

 

5. Recovering corporate earnings.

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)