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Abenomics - Third Arrow
What you need to know as an investor
CHARLES YANG, CFA
CFA INSTITUTE BOARD OF GOVERNORS
2009 - 2015
What is Abenomics?
“Japan Revitalization Strategy” to eliminate
deflationary mindset
• First Arrow – Easy Monetary Policy
• Second Arrow – “Flexible” Fiscal Policy
• Third Arrow – Growth Strategy/Deregulation
Impact from First and Second Arrow
22,000
20,000
18,000
16,000
14,000
12,000
10,000
Nikkei 225
8,000
6,000
2010
2011
2012
2013
2014
Period :Jan 2010 – Aug 2015
Source : Nikkei Inc. , Bloomberg
2015
Impact from First and Second Arrow
（%）
1.6
1.4
1.2
JGB10Y
1
0.8
0.6
0.4
0.2
0
2010
2011
2012
2013
2014
Period: Jan 2010 – Aug 2015
Source :Bloomberg
2015
Impact from First and Second Arrow
CPI (Ex Food )
104
103
102
101
100
99
98
97
2008
2009
2010
2011
2012
2013
2014
Period: Jan 2008 – Aug 2015
Source :Bloomberg
2015
Impact from First and Second Arrow
（%）
Unemployment Rate
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
2010
2011
2012
2013
2014
Period: Jan 2010 – Aug 2015
Source :Bloomberg
2015
Impact from First and Second Arrow
Nominal GDP (Fiscal Year)
(JPY in bn)
530,000
520,000
510,000
500,000
490,000
480,000
470,000
460,000
450,000
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source :Cabinet Office
2009
2010
2011
2012
2013
2014
Third Arrow – More than Stewardship Code
and Corporate Governance Code
•
•
•
•
GPIF (Government Pension Investment Fund)
Reform
“Womenomics”
University Reform
“Cool Japan”/Tourism
Japan Stewardship Code
“Principles for Responsible Institutional Investors”
•
•
•
Draft version in December 2013/Final version approved in
February 2014
Adopted by 127 institutions (June 2014)
7 Principles, but boils down to
ENGAGEMENT!
Corporate Governance Code
Key element of government’s growth strategy from June 2014
• Based on OECD Principles of Corporate Governance
• Code finalized in March 2015
• Applies to wider range of companies than similar codes in other
countries
• Specifies 5 General Principles and 30 Principles
• “Comply or Explain”
Toshiba – Embarrassment for Abe
Toshiba is a multinational conglomerate known for consumer
electronics, semiconductors, nuclear energy, among others
• 200,000+ employees globally, 2.4 billion USD operating income
• revealed overstatement of operating income by 1.2 billion USD
over seven years
• resignations from CEO, 2 ex-CEOs & six company directors
As investors, need to follow progress in..
Profitability
Popularity
Board Composition
Diversity
Return on Equity
25
20
% Companies
20
16
15
13
14
14
12
11
10
5
0
0%-3%
3%-5%
5%-8%
8%-10%
10%-15%
Over 15%
ROE
Date : Nikkei Newspaper 4/7/2015
Source :Nikkei Inc
Others
As investors, need to follow progress in..
Profitability
Popularity
Board Composition
Diversity
（%）
Approval rating for the Abe Cabinet
100
Yes
No
90
80
70
60
50
40
30
20
10
0
2012/12
2013/04
2013/08
2013/12
2014/04
2014/08
2014/12
Source :Nikkei Inc
2015/04
2015/08
Stable leadership is a must
Years served as prime minister (post world war)
Sato 7.6
Yoshida 7.1
Koizumi 5.4
Nakasone 4.9
Ikeda 4.3
Kishi 3.4
Abe 2.6
Stable leadership is a must
Increase in stock price during administration
Nakasone
221%
Sato
220%
Abe
95%
0
50
100
150
200
250
300
Source : Bloomberg
As investors, need to follow progress in…
Profitability
Popularity
Board Composition
Diversity
Source : Bloomberg
Independent Directors
Number of firms with an independent director (as of July 2015)
0
924
1417
1
2+
1133
Source : Nikkei Inc
As investors, need to follow progress in…
Profitability
Popularity
Board Composition
Diversity
Source : Bloomberg
Number of companies with female director
10.5%
(for TSE1)
Source: Bloomberg (3/11/2015)
Proportion of female directors
1.5%
(for TSE1)
Source: Bloomberg (3/11/2015)
To summarize…
•
“Success” of Abenomics depends on Third Arrow
•
Adoption of Stewardship Code and Corporate Governance
Code within 15 months was AMBITIOUS
•
Don’t expect quick overall progress, but focus on process
and “small wins”
Thank you!
2015 Forecasting Dinner Keynote Speaker
Charles J. Yang, CFA
Questions
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