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Japan investors flock to stocks targeted by activists

Prospect of greater rewards and management reforms alluring

Japanese investors are picking up equities targeted by activists, helping the companies outperform the market.   © Reuters

TOKYO -- When shares of Japanese online life insurance provider Lifenet Insurance jumped as much as 14% Thursday, before closing with an 11% gain, it was seen as the latest example of Japanese investors rushing to a stock that activist investors have shown interest in.

A day before the stock surge, it came to light that Singapore-based Effissimo Capital Management had bought more than 5% of the insurer's shares.

Lifenet, which offers affordable premiums, is hardly a stock market star. Since its launch in 2008, it has stayed in the red. Yet investors apparently have hopes that Effissimo will steer the business in the right direction.

"I can expect [Effissimo] to offer advice that would take the business out of an unprofitable structure," Masayuki Otani of Securities Japan said.

Effissimo has built a track record of buying shares in companies to pursue investor rewards or management reforms. Private investors also follow Effissimo's lead in buying shares "because of the expectation that the stock price will climb on the supply-demand balance front," said Tomoichiro Kubota of Matsui Securities.

Leopalace21, a rental apartment operator, gained 5% on Thursday following Tuesday's news that Reno, an equity fund backed by Japanese activist investor Yoshiaki Murakami, augmented its stake in the component on consecutive days. Shares for Leopalace21 have soared nearly 80% since the end of April.

Part of the allure of activist-targeted stocks is that investors foresee companies becoming extra generous with shareholder returns. On May 14, filings showed that U.S.-based Taiyo Fund Management acquired a trove of shares in Open House. The next day, the real estate company announced a stock buyback plan.

Maxell Holdings will increase dividends by a factor of eight this fiscal year. A major shareholder in the consumer electronics manufacturer is Minami Aoyama Fudosan, another Murakami investment house.

Activist investors, who were often ignored by the companies they invest in, are gaining traction amid a growing awareness of corporate governance. And domestic institutional investors, who traditionally were reticent, are demanding that corporations reveal the results of shareholder votes. Now companies have found it necessary to provide reasonable explanations to support or reject activist proposals.

"Corporations are feeling pressure to reform themselves, and we can expect stronger shareholder rewards," said Kenji Abe at Okasan Securities. That point is supported by the 90% gain in the value of stock buybacks among listed companies so far this fiscal year.

Furthermore, "the inflow from retail investors and other short-term fund sources is also conspicuous," said a source at a domestic brokerage, indicating that this contingent is seeking assets immune from the U.S. China trade war.

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