Japan Shift From Buybacks May Benefit Longer Term, Managers Say
A reported recommendation from a Japanese government ministry that companies use spare cash for investment instead of buying back stock would benefit long-term investors, according to asset managers.
That's the view of Taku Ito, chief equity fund manager at Nissay Asset Management Corp., who says buybacks are positive in the short term but neglect essential investments for the future. The reported guideline 'may seem negative in the short term, since stock prices have risen due to buybacks, but in the medium to long term, it's pointing in the right direction,' Ito said.
Along similar lines, Mamoru Shimode, chief strategist at Resona Asset Management Co., explained that capital investments of cash are necessary to sustain a high return on equity.
The Ministry of Economy, Trade and Industry is preparing to issue advice from an expert panel that calls on firms to use excess funds for investments to raise corporate value rather than just buying back shares, the Asahi newspaper reported, without citing anyone.
A METI representative did not immediately respond to Bloomberg's request for comment on the report.
Under pressure from activists and the Tokyo bourse to raise shareholder returns, companies have been pursuing more buybacks, which have helped boost shares this quarter. Firms have announced more than ¥8.4 trillion in share repurchases this year through mid-May, almost double the same period last year and the most since at least 2017, when Bloomberg's data begins.
READ: Buybacks Make Japan a Shelter in Tariff Turmoil: Taking Stock
But some investors warn that such a recommendation may not be easy to implement. It's difficult to say how many opportunities there are for investment within the country, said Hiroshi Matsumoto, a senior client portfolio manager at Pictet Asset Management Japan Ltd.
And investor perception may be even more key, according to Ryohei Yanagi, a visiting professor at Waseda University Graduate School of Accountancy. 'The message of prioritizing investment over share buybacks is fundamentally correct. But if the discussion is framed as a binary choice between shareholder returns and investment, it could give global investors the wrong impression that Japanese companies are once again turning their backs on the market.'
With assistance from Kentaro Tsutsumi.
This article was generated from an automated news agency feed without modifications to text.
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