WEBVTT - Lots More on Why Japanese Stocks Are Surging 0:00:03.120 --> 0:00:11.320 Bloomberg Audio Studios, podcasts, radio news. How's Hong Kong? 0:00:13.039 --> 0:00:18.439 It's okay, we're uh, we're perking along here. It's uh. 0:00:18.560 --> 0:00:21.599 It's feeling a little bit better, you know, the last 0:00:21.640 --> 0:00:26.439 week or two here than it did for much of 0:00:26.480 --> 0:00:29.320 the second half of last year. Have you. 0:00:30.720 --> 0:00:35.640 Have you watched the ex Pats? No, I'm debating. 0:00:35.200 --> 0:00:37.600 Categorically, I categorically refuse to do so. 0:00:39.240 --> 0:00:41.400 I think I'm gonna watch it once all the episodes 0:00:41.560 --> 0:00:45.839 are out, just for nostalgia value. But yeah, I have 0:00:45.960 --> 0:00:48.280 heard mixed reviews. 0:00:48.800 --> 0:00:53.600 Yeah, it's it's it's uh. I objected to the way 0:00:53.640 --> 0:00:55.720 they you know, they did it, and I objected to 0:00:56.840 --> 0:00:58.880 I was sure I was going to object to certain 0:00:58.920 --> 0:01:02.600 portrayals and the I bet I'm not going to be surprised. 0:01:02.920 --> 0:01:05.119 Joe, did you did you know about that? 0:01:05.280 --> 0:01:06.000 What is the expert? 0:01:06.080 --> 0:01:06.840 So this was a. 0:01:06.840 --> 0:01:11.560 Huge thing in Hong Kong where during the pandemic they 0:01:11.640 --> 0:01:14.760 let Nicole Kidman in like without having to go through 0:01:14.840 --> 0:01:18.120 quarantine in order to film scenes for the show, which 0:01:18.160 --> 0:01:21.679 is all about expats living in Hong Kong. It was 0:01:21.720 --> 0:01:24.840 like a huge controversy. Everyone was so annoyed about it 0:01:24.880 --> 0:01:27.640 because it was it was just such an obvious double standard. 0:01:30.800 --> 0:01:33.360 I did a deadlift one. 0:01:33.800 --> 0:01:37.880 Okay, so many uh barges. 0:01:38.000 --> 0:01:40.040 This isn't after school special, except. 0:01:39.800 --> 0:01:42.320 I've decided I'm going to base my entire personality going 0:01:42.360 --> 0:01:45.560 forward on campaigning for a strategic pork reserve in the US. 0:01:45.680 --> 0:01:49.000 Where's the best posta? These are the important question. 0:01:49.120 --> 0:01:50.760 Is it robots taking over the world? No. 0:01:50.840 --> 0:01:53.720 I think that like in a couple of years, the 0:01:53.800 --> 0:01:56.000 AI will do a really good job of making the 0:01:56.040 --> 0:01:59.480 odd launch podcast, And people say, I don't really need 0:01:59.520 --> 0:02:02.880 to listen to Joe and Tracy anymore. We do have touching, 0:02:03.720 --> 0:02:07.560 the perfect welcome to lots More, where we catch up 0:02:07.600 --> 0:02:09.160 with friends about what's going on. 0:02:09.240 --> 0:02:12.440 Right now, because even when add Loots is over, there's 0:02:12.520 --> 0:02:13.840 always lots more. 0:02:14.200 --> 0:02:16.640 And we really do have the perfect guest. 0:02:19.160 --> 0:02:21.360 It seems like it's fun to be an investor in 0:02:21.400 --> 0:02:22.600 the Japanese market again. 0:02:23.880 --> 0:02:26.200 But after like thirty five years, Yeah, you had to 0:02:26.240 --> 0:02:29.120 wait a while. I think stocks for the long run, 0:02:29.280 --> 0:02:32.920 right the nie K I think recently on some measure 0:02:33.080 --> 0:02:37.320 broke it's nineteen eighty nine. The infamous nineteen eighty nine 0:02:37.440 --> 0:02:40.320 peak is back, so yeah, there it is. There's the chart. 0:02:40.480 --> 0:02:42.440 I just pulled it up on my terminal. Pretty impressive. 0:02:42.639 --> 0:02:44.840 Travis, isn't fun? Has it been enjoyable? 0:02:45.280 --> 0:02:49.960 Uh? Yeh yes, and no, partly, you know, being in Japan, 0:02:50.040 --> 0:02:51.919 you're you're constantly and I'm not in Japan, I'm in 0:02:51.960 --> 0:02:55.160 Hong Kong, but being you know, involved in the Japanese market, 0:02:55.200 --> 0:02:58.720 you're constantly told, well, you know, the Magnificent seven, they 0:02:58.720 --> 0:03:00.760 were up, like, you know, seventy three percent last year, 0:03:00.800 --> 0:03:04.840 how about you? And then okay, well Japan's up forty 0:03:04.880 --> 0:03:07.119 percent and the S and p's up less. Okay, but yeah, 0:03:07.120 --> 0:03:09.800 but that's in yen and you know, the dollars strengthened 0:03:09.800 --> 0:03:12.320 against the end, and so there's there's always some naysayers 0:03:12.320 --> 0:03:15.280 here and there. But yeah, it's been okay, and there's 0:03:15.320 --> 0:03:17.639 been a lot of changes and those changes have really 0:03:17.680 --> 0:03:19.920 been rewarding for those of us who've been watching and 0:03:20.000 --> 0:03:23.680 waiting for these changes to manifest themselves more publicly. Yeah. 0:03:23.720 --> 0:03:27.120 So we are speaking to Travis Lundy. He is, of course, 0:03:27.720 --> 0:03:31.320 repeat All Thoughts guests and a special situations analyst who 0:03:31.360 --> 0:03:34.880 publishes on smart Karma. One of the smartest people I 0:03:34.960 --> 0:03:38.760 know when it comes to both markets and general trends, 0:03:38.800 --> 0:03:41.440 I guess in Asia based out of Hong Kong, but 0:03:41.560 --> 0:03:44.880 you have a lot of historical experience with the Japanese 0:03:44.920 --> 0:03:46.920 market right. In fact, this is sort of your bread 0:03:46.920 --> 0:03:51.800 and butter corporate Japan, special situations, big events in that market. 0:03:52.560 --> 0:03:56.600 Yes, I've been involved in the Japanese markets for twenty 0:03:56.600 --> 0:03:59.200 plus years. I lived in Japan for twenty plus years. 0:04:00.400 --> 0:04:02.480 I moved to Hong Kong for a job and I'm 0:04:02.520 --> 0:04:04.960 still here, but I do a lot of my work 0:04:05.160 --> 0:04:05.960 related to Japan. 0:04:06.240 --> 0:04:08.880 So this is the thing that you hear. The thing is, 0:04:08.920 --> 0:04:10.760 you've been hearing it for a while, So this is 0:04:10.760 --> 0:04:13.760 why I'm not entirely satisfied. But a thing that you 0:04:13.920 --> 0:04:19.040 hear is, oh well, suddenly corporate Japan. Management in Japan 0:04:19.080 --> 0:04:22.359 have become much more focused on returns or become more 0:04:23.040 --> 0:04:26.000 shareholder friendly, et cetera. I guess there was this perception 0:04:26.080 --> 0:04:29.080 at one point, you know, and that management in Japan 0:04:29.200 --> 0:04:32.040 for a long time ran the business for management or insiders, 0:04:32.040 --> 0:04:32.760 and now they're running for. 0:04:32.720 --> 0:04:34.920 Sharehold first, salary men for their employees. 0:04:35.120 --> 0:04:38.520 Is this true? Is there is this actually a phenomenon 0:04:38.680 --> 0:04:39.320 that's changed. 0:04:40.839 --> 0:04:43.520 Yeah, it's changed quite a bit. It really has. And 0:04:43.640 --> 0:04:45.680 part of this is if you go back to the history, 0:04:45.800 --> 0:04:52.599 you know, back in sixteen forty two, seriously, the post war, 0:04:53.520 --> 0:04:56.800 you know, the occupation administration broke up the Zybots, but 0:04:56.800 --> 0:05:01.000 they were afraid of communism, so they allowed, you know, 0:05:01.000 --> 0:05:05.920 they allowed the corporate groupings to reform. Instead of vertically, 0:05:06.279 --> 0:05:10.599 they allowed them to reform horizontally around banks and financial institutions. 0:05:11.240 --> 0:05:14.400 And a bunch of the shares in corporate Japan were 0:05:14.400 --> 0:05:18.080 handed off to individuals, but individuals then sold over the 0:05:18.160 --> 0:05:22.000 years and there were no buybacks, but the financial institutions 0:05:22.040 --> 0:05:26.360 just accumulated them. So by the mid eighties, financial institutions 0:05:26.360 --> 0:05:30.120 that is to say, banks, trust banks, regional banks, life 0:05:30.120 --> 0:05:34.880 insurance companies, property and casualty insurance companies, and then of 0:05:34.920 --> 0:05:40.600 course corporations, they held two thirds of the market, which 0:05:40.640 --> 0:05:43.960 is just nuts, right. Since then it's gone way way down. 0:05:44.360 --> 0:05:49.400 And part of this is, you know, banks support you know, companies. 0:05:49.640 --> 0:05:54.560 They a company has a need to invest capital, so 0:05:54.600 --> 0:05:56.600 they go borrow some money from the bank. The bank says, here, 0:05:57.120 --> 0:06:00.760 I'll buy some warrants too, and the warrants become shares. Okay, 0:06:00.800 --> 0:06:04.200 Now you IPO a subsidiary of a major company, and 0:06:04.360 --> 0:06:08.400 that subsidiary has you know, you know, three different insurance companies, 0:06:08.440 --> 0:06:12.040 three different banks, five different supplier partners, ten different customers 0:06:12.080 --> 0:06:15.520 already as shareholders. They sell some off to retail, but 0:06:15.520 --> 0:06:19.080 it's still eighty percent you know, corporate and finance, and 0:06:19.800 --> 0:06:23.239 this is part of society. You know, cross holdings wasn't 0:06:23.279 --> 0:06:28.520 some you know, malicious thing designed to keep out you know, 0:06:28.720 --> 0:06:31.640 voting shareholders. It was really, you know, let's go all 0:06:31.680 --> 0:06:33.920 do this together, support each other, be nice and friendly. 0:06:34.360 --> 0:06:37.760 And suddenly became rude to sell. You know, why would 0:06:38.200 --> 0:06:40.760 I would sell this in order to go make money 0:06:40.800 --> 0:06:43.000 for myself. You know, I'm part of a society. I'm 0:06:43.080 --> 0:06:46.279 just going to support this now. Eventually, you know, they 0:06:46.320 --> 0:06:48.440 started selling down because they needed to. There was a 0:06:48.480 --> 0:06:51.359 you know, we nineteen eighty nine, and then you know, 0:06:51.360 --> 0:06:55.240 by nineteen ninety eight, we were you know, half half off. 0:06:55.920 --> 0:06:58.600 And you know, there was a banking crisis in the 0:06:58.680 --> 0:07:03.000 late nineties that persisted through the early naughties. A couple 0:07:03.000 --> 0:07:06.200 of brokers went the bust in the late nineties. A 0:07:06.200 --> 0:07:08.799 couple of insurance companies went bust in the early naughties, 0:07:09.440 --> 0:07:11.880 mostly because they held too many shares which had gone 0:07:11.920 --> 0:07:15.560 too far down that and real estate obviously, and you know, 0:07:16.000 --> 0:07:19.200 the shares started going down, and the banks and insurance 0:07:19.240 --> 0:07:21.240 companies in corporate started seeing this is kind of an 0:07:21.240 --> 0:07:26.560 existentialist risk, so they sold shares, and you know, those 0:07:26.560 --> 0:07:31.480 shares ended up in the hands of foreigners, retail and 0:07:32.280 --> 0:07:36.680 more public shareholders engended more questions about what management was doing. 0:07:36.920 --> 0:07:39.440 So one of the things I'm curious about is what 0:07:39.560 --> 0:07:44.320 the proximate trigger is or was for this new found 0:07:44.600 --> 0:07:50.679 I guess like investor slash return focused idea in Japan inc. 0:07:50.880 --> 0:07:53.040 So you know, when it comes to Japan, I think 0:07:53.760 --> 0:07:57.040 I can remember, like for decades, almost everything touching the 0:07:57.120 --> 0:08:01.160 Japanese market and economy tends to be discussed in almost 0:08:01.240 --> 0:08:04.360 cultural terms. It's kind of weird, but like people were 0:08:04.400 --> 0:08:07.920 always debating whether or not the culture of the Japanese 0:08:07.960 --> 0:08:11.400 economy could change, whether or not it would be more 0:08:11.480 --> 0:08:15.640 open to things like imported labor immigration, or whether that 0:08:15.720 --> 0:08:21.120 was just impossible given attitudes towards foreigners, but also whether 0:08:21.320 --> 0:08:24.120 or not the I guess the sort of like internal 0:08:24.200 --> 0:08:28.240 focus of companies was down to a different type of 0:08:28.280 --> 0:08:33.040 societal value, so more of a collectivist society versus maybe 0:08:33.080 --> 0:08:36.520 the rampant individualism that we see in the US. So 0:08:37.200 --> 0:08:40.240 what was the change here because people were kind of 0:08:40.280 --> 0:08:43.320 like dismissive of the idea that this could happen for 0:08:43.360 --> 0:08:44.000 a long time. 0:08:45.000 --> 0:08:46.960 I think a couple of things. First was, you know, 0:08:47.160 --> 0:08:49.640 when the dollar yen went from one hundred and fifty 0:08:49.679 --> 0:08:54.559 and nineteen ninety to seventy nine in nineteen ninety five, 0:08:55.280 --> 0:08:58.920 all of Japan Inc. Which produced in Japan and sold abroad, 0:08:59.080 --> 0:09:02.480 you know the giant XP machine, and they lost huge, 0:09:03.200 --> 0:09:07.080 huge sums, and so all of the Japanese companies they 0:09:07.080 --> 0:09:10.240 set up production bases abroad. So now you have you know, 0:09:10.360 --> 0:09:14.760 Toyota making America cars in America sold to Americans, and 0:09:15.600 --> 0:09:18.480 you know, Japan turned the demographic corner. Japan was much 0:09:18.520 --> 0:09:22.240 slower to come back after its banking crisis than you know, 0:09:22.280 --> 0:09:26.400 the US was after its own banking crisis in the eighties. 0:09:26.760 --> 0:09:32.360 And you know, Japanese, the Japanese business of Toyota didn't 0:09:32.400 --> 0:09:35.840 make nearly as much money as the US business, So 0:09:35.920 --> 0:09:39.480 you know, profits piled up abroad, and you know, companies 0:09:39.480 --> 0:09:43.400 became cash rich because companies had found that they were 0:09:43.480 --> 0:09:46.480 unable to borrow when they needed to invest simply because 0:09:46.480 --> 0:09:48.640 the banks were too weak to lend too much money, 0:09:48.679 --> 0:09:50.880 and they were always afraid of lending to companies who 0:09:50.920 --> 0:09:53.160 had a plan rather than companies who had assets to 0:09:53.200 --> 0:09:58.120 back their loans. Companies started to hoard cash. They hoarded cash, 0:09:58.160 --> 0:10:00.680 and they hoarded shares. Shares were not more to market, 0:10:00.720 --> 0:10:03.240 and so they became a rainy day fund. And as 0:10:03.280 --> 0:10:06.000 long as they didn't get hit, you know, you were okay. 0:10:06.080 --> 0:10:08.120 Go down fifty percent, you have to impair them, but 0:10:08.440 --> 0:10:10.720 as long as they don't go way way down, you're 0:10:10.840 --> 0:10:14.360 generally okay. So they became a rainy day fund just 0:10:14.480 --> 0:10:17.440 because they needed to hold on to this stuff to 0:10:17.480 --> 0:10:20.400 be sure that they had access to money when they 0:10:20.440 --> 0:10:23.880 needed it. And so we kind of went through the naughties. 0:10:24.040 --> 0:10:26.960 Japan you know, came through the GFC better than you know, 0:10:27.000 --> 0:10:31.199 most people, I think, And then there was a push 0:10:31.679 --> 0:10:36.520 towards increased stewardship and increased corporate governance. Part of this was, 0:10:36.800 --> 0:10:41.120 you know, based on the Scandinavian experience, where some of 0:10:41.120 --> 0:10:45.439 the pensions decided to go whole hog on better stewardship 0:10:45.440 --> 0:10:49.680 and better corporate governance, pressuring companies back in the late nineties, 0:10:50.559 --> 0:10:53.840 the UK did so in the early naughties. The Tsee 0:10:53.880 --> 0:10:56.040 set up a corporate governance code in two thousand and four, 0:10:56.040 --> 0:10:59.000 which nobody will remember and nobody ever paid attention to. 0:10:59.559 --> 0:11:01.880 The UK set up more of a stewardship code and 0:11:02.000 --> 0:11:04.400 more of a corporate governance code. As time went on 0:11:04.480 --> 0:11:08.000 there were more reports about the effectiveness. Japan copied that 0:11:08.320 --> 0:11:10.760 and set up a stewardship code in a corporate governance 0:11:10.760 --> 0:11:13.480 code after much you know, back and forth in the 0:11:13.960 --> 0:11:17.680 political arena, and it finally got there in the just 0:11:17.760 --> 0:11:22.640 after mister Abbe was elected in late twenty twelve. It 0:11:22.720 --> 0:11:25.079 showed up twenty fourteen and the Corporate Governance Code in 0:11:25.080 --> 0:11:28.679 twenty fifteen. There was pressure people saw it. It was 0:11:28.880 --> 0:11:31.040 finally you know, starting to push. 0:11:30.960 --> 0:11:34.280 From what it sounds like, you know, I started in 0:11:34.320 --> 0:11:36.840 the beginning with my cynicism as like, oh, you always 0:11:36.840 --> 0:11:40.760 hear this. It's like Japan is turning the corner on 0:11:41.640 --> 0:11:45.040 share on you know, management styles and corporate governance, et cetera. 0:11:45.240 --> 0:11:47.640 What it sounds like is actually all that's been true. 0:11:48.040 --> 0:11:50.600 It's just a very long process. So there's the long 0:11:50.720 --> 0:11:54.480 process of the sort of diminution of the cross holdings, 0:11:54.520 --> 0:11:58.000 the long process of the various expectations at the TSC, 0:11:58.080 --> 0:12:00.440 et cetera. So all of it was always true. It 0:12:00.520 --> 0:12:02.160 just takes a while for these things to sort of 0:12:02.160 --> 0:12:02.800 come to Fruce. 0:12:03.040 --> 0:12:05.800 That's yeah, that's exactly right. And you know, we hit 0:12:06.200 --> 0:12:08.760 Japan hit bottom in twenty twelve when the dollar yen 0:12:08.880 --> 0:12:12.240 was super low and it's been up since. You know, 0:12:12.280 --> 0:12:14.439 we've had a four bag or five bagger in the 0:12:14.520 --> 0:12:19.520 nike A in twelve years. Call it so, and that 0:12:19.600 --> 0:12:21.920 isn't that bad. You know, it's been in end terms, 0:12:21.920 --> 0:12:25.199 which means it's less than dollar terms. But that's where 0:12:25.200 --> 0:12:27.400 we started from. And we had to come up the 0:12:27.480 --> 0:12:31.760 hill through abenomics, through a bunch of different privatizations, to 0:12:31.920 --> 0:12:36.160 get some leadership examples out in the publics so that 0:12:36.520 --> 0:12:40.600 the media could point to that company, that company did 0:12:40.640 --> 0:12:43.160 something good. And the hint that everyone's supposed to take 0:12:43.240 --> 0:12:57.440 is I should be more like them. 0:12:59.600 --> 0:13:02.280 I under stand that. You know, at a high level, 0:13:02.440 --> 0:13:07.440 there are examples of shifts in Japan corporate governance, so 0:13:07.640 --> 0:13:09.800 you know there are actions being taken at a sort 0:13:09.800 --> 0:13:13.640 of like executive slash strategic level. But I kind of 0:13:13.679 --> 0:13:17.839 wonder how much that filters down to day to day 0:13:17.920 --> 0:13:21.880 business because I remember a lot of my friends from 0:13:22.080 --> 0:13:24.800 high school in Tokyo, you know, they stayed in the 0:13:24.840 --> 0:13:29.359 city and they went to work for Japanese companies. And admittedly, 0:13:29.440 --> 0:13:31.520 the last time I spoke to them, a lot of 0:13:31.520 --> 0:13:34.719 them was pre pandemic, so this would have been like 0:13:34.880 --> 0:13:38.880 twoenty nineteen or twenty eighteen, and so many of them 0:13:38.880 --> 0:13:42.840 were just miserable, Like the working culture was terrible, you know, 0:13:43.480 --> 0:13:47.680 gender dynamics were terrible. I just wonder, like how much 0:13:47.720 --> 0:13:51.840 of that aspect of Japan's corporate culture has actually changed. 0:13:52.440 --> 0:13:55.199 That's actually changed a lot, and it changed a lot 0:13:55.400 --> 0:13:58.920 in you know, post GFC in part because you know, 0:13:58.960 --> 0:14:03.800 companies weren't making any money, and Japanese companies didn't want 0:14:03.800 --> 0:14:07.120 to pay overtime, and so one of the things is, 0:14:07.160 --> 0:14:10.920 you know, you pay overtime and eventually people end up 0:14:10.960 --> 0:14:13.320 with a little bit more cash in their pocket. The manager, 0:14:13.600 --> 0:14:15.560 you know, his job is to take out the subordinates. 0:14:15.600 --> 0:14:18.280 They all go to some bar and you know that's 0:14:18.320 --> 0:14:20.760 where they end up at the hostess bar. But they 0:14:20.760 --> 0:14:23.640 no longer had any money and Japan really, you know, 0:14:23.880 --> 0:14:26.880 when I arrived in Japan in nineteen ninety. You know, 0:14:26.960 --> 0:14:29.720 this was Julianna's Tokyo. Actually they went under just before that, 0:14:29.800 --> 0:14:32.520 but you know it was really you know, Japan's great, 0:14:32.640 --> 0:14:35.440 Japan's fantastic, Japan's the top of the world. We will 0:14:35.480 --> 0:14:38.480 conquer the US in five years. And you know, Hong 0:14:38.560 --> 0:14:40.840 Kong was much like that when I arrived in twenty eleven. 0:14:41.320 --> 0:14:46.800 But Japan, you know, took us, you know, a step back, 0:14:47.000 --> 0:14:50.400 and they really, you know, fifteen years of being beaten 0:14:50.440 --> 0:14:54.280 down economically speaking, you know, household incomes not going up, 0:14:54.440 --> 0:14:57.800 asset prices going down, real estate prices going down. People 0:14:58.440 --> 0:15:02.640 decided that, you know, leisure, hobbies, foreign travel, all of 0:15:02.680 --> 0:15:04.880 this is much more interesting. If I'm going to have 0:15:04.920 --> 0:15:07.000 a job which really stinks, well, guess what, I'm going 0:15:07.040 --> 0:15:08.320 to quit that job and I'm going to go work 0:15:08.320 --> 0:15:09.920 for a foreign company where I'm treated better. 0:15:10.040 --> 0:15:13.359 Trevis is a lot of that you mentioned, the importance 0:15:13.400 --> 0:15:15.760 of you need some company to do it, and then 0:15:15.800 --> 0:15:19.000 everyone wants to emulate them. So some company takes some actions, 0:15:19.120 --> 0:15:22.400 the stock goes up, people shareholders get rich. Another shareholders 0:15:22.440 --> 0:15:24.840 want to get rich. Which company did that in Japan? 0:15:25.000 --> 0:15:26.960 Who is that prime mover? 0:15:27.440 --> 0:15:30.600 That's a good question. The example which was perfect here 0:15:30.720 --> 0:15:34.200 was when the when the Tokyo Stock Exchange and the 0:15:34.240 --> 0:15:37.600 FSA changed the Corporate Governance Code. This the first time, 0:15:37.840 --> 0:15:41.040 you know, after the original. They made an amendment to it, 0:15:41.400 --> 0:15:44.240 one of the general principles which said, if you hold 0:15:44.560 --> 0:15:48.680 corporate crossholdings, you are obliged to check them every year 0:15:48.800 --> 0:15:50.600 to see whether you need to hold them in order 0:15:50.640 --> 0:15:53.960 to do business. And strictly speaking, you should never need 0:15:54.000 --> 0:15:57.440 to hold crossholdings in order to do business. You should 0:15:57.440 --> 0:15:59.880 be able to do business with partners all the time anyway, 0:16:00.240 --> 0:16:04.960 and no company should restrict other companies from you know, 0:16:05.200 --> 0:16:09.000 selling their shares. That withholding business as a threat would 0:16:09.000 --> 0:16:11.600 be a really bad thing. So they put that in 0:16:11.640 --> 0:16:14.720 there and then they said, okay, we're going to do this. 0:16:14.760 --> 0:16:17.560 As an example, then CSE owned four point nine percent 0:16:17.560 --> 0:16:21.480 of the Singapore Exchange and they you know, they made 0:16:21.520 --> 0:16:24.280 a little presentation and says, well, we've decided, we've talked 0:16:24.320 --> 0:16:26.400 with the Singapore Stock Exchange. We've decided we don't need 0:16:26.480 --> 0:16:29.760 to do this, but we'll have a continued good relationship 0:16:29.760 --> 0:16:32.640 with them and partner on products and services, and so 0:16:32.720 --> 0:16:34.720 we've decided to sell one third of our stake every 0:16:34.760 --> 0:16:37.120 year for the next three years in order to not 0:16:37.200 --> 0:16:40.360 disrupt the market and not cause market you know, consternation, 0:16:41.120 --> 0:16:44.160 and we will apply the proceeds to you know, improving 0:16:44.160 --> 0:16:47.840 shareholder returns. And that was the example, just as they 0:16:47.960 --> 0:16:50.800 changed the corporate Governance Code. You know, since then, we've 0:16:50.840 --> 0:16:55.120 also seen activists coming in. Actually a perfect example, an 0:16:55.160 --> 0:16:59.320 absolutely perfect example is Tokyo Electron. In twenty thirteen to 0:16:59.360 --> 0:17:02.000 two thousand five fifteen, there was a long running merger 0:17:03.960 --> 0:17:09.640 negotiation and approval process between Tokyo Electron and Applied Materials 0:17:09.680 --> 0:17:12.640 in the United States, and they ran a similar business. 0:17:13.160 --> 0:17:15.480 And you know, Tokyo Electron was always kind of stodgy. 0:17:15.520 --> 0:17:18.080 They held some cross holdings, they held a lot of cash, 0:17:18.520 --> 0:17:22.120 and they kind of built their business in a certain way. 0:17:22.160 --> 0:17:24.359 And they spent you know, basically the better part of 0:17:24.400 --> 0:17:28.840 two years talking to AMAT and they walked out of it, 0:17:29.000 --> 0:17:32.040 and the deal broke. The DOJ you know, blocked it, 0:17:32.520 --> 0:17:35.800 and it was announced at the end of April twenty fifteen, 0:17:36.040 --> 0:17:39.639 and they came out and said, all right, we've learned 0:17:39.640 --> 0:17:41.560 so much in the process of two years. We're going 0:17:41.600 --> 0:17:44.800 to completely change our business. 0:17:44.280 --> 0:17:45.680 Why I'm just looking at. 0:17:45.640 --> 0:17:48.240 Them a going up as a ten bagger, right, So yeah, 0:17:48.280 --> 0:17:51.639 they basically said, you know, they said, we're going to 0:17:51.680 --> 0:17:54.080 concentrate on our customers in a different way. We're going 0:17:54.119 --> 0:17:56.280 to have a different dialogue with our customers, much the 0:17:56.320 --> 0:17:58.600 way Amat has a dialogue with their customers. We're going 0:17:58.640 --> 0:18:00.679 to take all of our extra cash, we're going to 0:18:00.720 --> 0:18:04.639 buy stock back. We're going to set a minimum payout 0:18:04.720 --> 0:18:07.640 ratio of fifty percent, so every quarter or every half, 0:18:07.680 --> 0:18:09.840 you know, we're going to pay out exactly half of 0:18:09.880 --> 0:18:12.239 our earnings, so you know what you're going to get 0:18:12.240 --> 0:18:16.400 as a dividend, and we will strive to produce more 0:18:16.440 --> 0:18:20.119 shareholder return. It wasn't noticed at the time, but you know, 0:18:20.160 --> 0:18:22.520 people noticed it later and the stock is way up. 0:18:23.000 --> 0:18:28.320 Other companies, you know, took a less good governance stance 0:18:28.560 --> 0:18:30.359 at the time, but you know they were. There were 0:18:30.359 --> 0:18:34.080 a bunch of examples, and it's slow, but it's it's 0:18:34.160 --> 0:18:36.440 kind of you know, Rolling Stone. 0:18:36.920 --> 0:18:40.760 So speaking of people noticing, I mean you mentioned just 0:18:40.800 --> 0:18:43.720 then there's been more activism. We've we've certainly seen a 0:18:43.760 --> 0:18:47.000 lot of inflows into the market as well. And I 0:18:47.040 --> 0:18:50.440 think the fact that you know, stocks the Nicky is 0:18:50.480 --> 0:18:53.560 a record is obviously catching a lot of people's attention, 0:18:53.840 --> 0:18:58.400 but are you seeing that impacting investor behavior, Like are 0:18:58.400 --> 0:19:02.200 people responding to the market maybe differently than they once did. 0:19:02.280 --> 0:19:05.159 And I'm also thinking back to again this is kind 0:19:05.160 --> 0:19:08.960 of a cliche, but the Missus Watsonabe idea. It used 0:19:08.960 --> 0:19:10.960 to be that a lot of retail investors in Japan 0:19:11.040 --> 0:19:15.480 would be focused on currency arbitrage because that was kind 0:19:15.520 --> 0:19:18.600 of a way of getting returns in a period of 0:19:18.720 --> 0:19:22.320 slow economic growth and the Lost decade and all of that. 0:19:22.480 --> 0:19:24.879 But I mean, now you can invest in stocks and 0:19:24.920 --> 0:19:25.920 get a return that way. 0:19:26.600 --> 0:19:29.359 Yeah, it's an interesting question. Last year there were a 0:19:29.400 --> 0:19:32.520 lot of you know, strategist comments and a lot of 0:19:32.720 --> 0:19:36.520 you know, some of the famous japan specialist twitterati. We're 0:19:36.560 --> 0:19:40.480 commenting on how much foreign inflow there was into the market. 0:19:40.560 --> 0:19:42.600 And indeed, in the first half of twenty twenty three, 0:19:42.640 --> 0:19:44.679 we saw about four point five trillion yen come in, 0:19:44.720 --> 0:19:46.800 which was a really big thing. That was the biggest 0:19:47.080 --> 0:19:50.240 inflow we had seen in almost ten years. But you know, 0:19:50.280 --> 0:19:52.879 the second half, you know, kind of dampened it and 0:19:52.880 --> 0:19:55.240 we'd lost one point five trillion. But if you go 0:19:55.280 --> 0:19:58.719 back twenty twenty two, twenty twenty one, twenty nineteen eighteen. 0:19:59.040 --> 0:20:02.919 You know that three trillion yen didn't cover half of 0:20:02.960 --> 0:20:06.240 the outflow during the previous five years, so it was 0:20:06.359 --> 0:20:08.720 nice to come back, but we were at no means, 0:20:08.880 --> 0:20:13.000 you know, overweight foreign exposure. The other thing is, you know, 0:20:13.040 --> 0:20:15.640 you've seen this everywhere. The rise of passive has been 0:20:15.720 --> 0:20:19.919 you know, dramatic, and that includes you know, American pensions 0:20:19.960 --> 0:20:24.840 investing with American fund managers who manage international portfolios. A 0:20:24.880 --> 0:20:29.080 lot more of it's now impassive than active. And so 0:20:29.119 --> 0:20:31.760 we've seen a rise of passive flows and a decrease 0:20:31.800 --> 0:20:36.679 of active flows. But the activism itself depends on active investors, 0:20:36.800 --> 0:20:39.800 not passive investors, because the passive investors, you know, they 0:20:39.840 --> 0:20:41.720 just go with the thing. If it gets taken over, 0:20:41.760 --> 0:20:43.440 it gets taken over. It doesn't get taken over, it 0:20:43.480 --> 0:20:44.879 doesn't get taken over. What am I going to do? 0:20:45.040 --> 0:20:49.720 So one investor, one investor who's out bullish on Japan 0:20:49.960 --> 0:20:52.640 and even wrote about it in his recent note, Warren Buffett, 0:20:52.680 --> 0:20:55.280 and he has stakes in five companies, and he says 0:20:55.320 --> 0:20:58.840 they follow shareholder friendly policies. Some of their Mitsubishi Mitsui's 0:20:58.840 --> 0:21:03.040 Sumitomo or Benny Tochu. I don't know if I'm pronouncing 0:21:03.080 --> 0:21:05.800 all those correctly. And he says they don't pay their 0:21:05.800 --> 0:21:08.680 executives as much as US executive. So what is it 0:21:08.720 --> 0:21:12.399 about these companies are like, what is this opportunity or 0:21:12.520 --> 0:21:15.320 the sort of the new buffet in Japan trade? 0:21:15.560 --> 0:21:18.200 Well, so that was a fantastic trade and the reason 0:21:18.280 --> 0:21:20.400 why it is a fantastic trade was because those companies 0:21:20.400 --> 0:21:24.679 are really great companies. They are effectively listed private equity funds. 0:21:25.359 --> 0:21:29.480 They are very competitive, They pay their young people a 0:21:29.520 --> 0:21:33.960 lot of money. They recruit very very good personnel. The 0:21:34.040 --> 0:21:37.840 personnel get trained, they enter a kind of a little 0:21:37.880 --> 0:21:41.840 pod and go forth and do projects. There's a project leader, 0:21:42.040 --> 0:21:44.679 you know, that's a flying V. Goes up in the 0:21:44.760 --> 0:21:48.359 hierarchy for the next five or ten years. Eventually, you know, 0:21:48.440 --> 0:21:50.600 you kind of get kicked out, You get sent off 0:21:50.600 --> 0:21:53.520 to another project. Maybe you spin out and you do 0:21:53.600 --> 0:21:56.320 an IPO of a port. You take control of a 0:21:56.359 --> 0:21:59.880 project which they then invest in. But back when warren 0:22:00.200 --> 0:22:03.360 It started investing, they were able to buy the projects 0:22:03.480 --> 0:22:06.840 at or buy the company at zero point five times. Book, 0:22:07.280 --> 0:22:10.240 that's pretty good. You generally can't buy private equity funds 0:22:10.240 --> 0:22:13.720 at zero point times fund five times book. And these 0:22:13.720 --> 0:22:16.240 guys had had, you know, a couple of years of 0:22:16.640 --> 0:22:20.679 bad returns because they were heavily invested in the oil 0:22:20.760 --> 0:22:23.639 patch oil and gas, and when you know, oil and 0:22:23.680 --> 0:22:26.960 gas was very high in twenty fourteen and got crushed 0:22:27.000 --> 0:22:29.440 in twenty fifteen twenty sixteen, these guys had to write 0:22:29.440 --> 0:22:31.480 off a lot of a lot of their investments or 0:22:31.480 --> 0:22:35.080 write down the investments. So they did, and you know, 0:22:35.160 --> 0:22:37.440 it got kind of it stayed weak for a little while. 0:22:37.800 --> 0:22:40.640