Contrary to Industry Speculation, Major Chinese Investors Have Not Divested Japanese Equities, a Study by LS Global Advisory Group Shows

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Chinese sovereign funds have not broadly divested Japanese shares, as has recently been suggested in the Japanese press and speculated on in the investment industry, according to an analysis by LS Global Advisory Group.

The disappearance of shares at registration account SSBT-OD05 by March 31, 2015, followed by a recent media report in Japan highlighting this development, has caused concern in the investment community that one or more major Chinese funds have sold their equity stakes in many Japanese issues. The SSBT-OD05 account has received much attention in recent years as it recorded the significant purchases of Chinese ownership in Japanese equities that began in 2007, according to LS Global’s research. In 2012, according to multiple reports, the assets of this account peaked at an estimated 4 trillion yen ($32 billion) among 167 Japanese companies.

In a recent Nikkei Asian Review article (June 20, 2015) about the disappearance of shares from the OD05 account, TS China Research suggested that China is shifting the government fund into domestic businesses. This report added to the speculation of a broad equity sell-off.

Holdings Have Been Re-Registered, Not Divested

LS Global Advisory Group has found that this is simply not the case. In a special analysis, LS Global, a specialist shareholder identification firm, has studied historic investor holdings in over 40 Japanese companies through March 2015. Through this analysis, LS Global has determined that the portfolios behind the OD05 holdings have mostly been re-registered to other nominees, including an account named SSBT-505080.

“The decline in shares at SSBT-OD05 is being incorrectly interpreted by some as a broad sell-off by one or more Chinese funds,” stated Lucas Scheer, president of LS Global. “What has actually happened is that most portfolios that were previously held at OD05 have been re-registered to other accounts, although there is no single clear pattern. The corresponding new registrations are different, issue by issue, based on the Chinese portfolios that are invested in them. We’ve accounted for the vast majority of the OD05 shares as new registrations for nearly all issues we’ve studied, confirming that there has been no vast departure.”

The LS Global analysis found that much of the recently increased holdings in the SSBT-505080 nominee consist of externally managed sovereign wealth fund (SWF) portfolios. Furthermore, several other nominees have also received Chinese SWF portfolios and other Far East-based beneficial owners which had still been held at SSBT-OD05 prior to March 2015.

Scheer concluded that, “Based on our historical data and understanding of the accounts associated with these nominees, as well as research we’ve performed in other markets, we are confident that the shift out of SSBT-OD05 predominantly reflects a change in registration and not a major divestment of Japanese shares by Chinese SWF portfolios. The major Chinese SWFs and other Far East-based beneficial owners still maintain their core holdings in Japanese equities.”

About LS Global Advisory Group, Inc.

LS Global Advisory Group is a leading provider of Shareholder Identification and market intelligence services, delivered with a dedication to personalized service and responsiveness to client needs. This crucial information helps client companies communicate more effectively with their current and prospective shareholders, as well as with the investment community as a whole. Formed in 2006 by industry veteran Lucas Scheer, the firm is a leader in identifying and analyzing institutional ownership in public companies around the world. LS Global operates across all major industrial countries, and in addition to providing shareholder intelligence and Investor Targeting services, offers a full suite of Global Proxy Services including Corporate Governance Consulting. For additional information about LS Global Advisory Group, please visit our website, http://www.LSGlobalAdvisory.com, or contact President Lucas Scheer at (212) 430-3782 or at info(at)lsglobaladvisory.com.

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Lew Koflowitz