Japanese Internet firms offer something new: high returns

Wed Apr 16, 2014 6:13am EDT
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By Ayai Tomisawa

TOKYO (Reuters) - Some Japanese Internet companies are getting a boost from foreign investors as Prime Minister Shinzo Abe pushes for an elusive strength his country's firms are not known for - high returns.

Overseas long-term investors were already hunting for stocks with growth potential, good governance and higher returns on equity before Abe took office in December 2012. But it's been a hard slog for many as the world's third-biggest economy stumbled through 15 years of deflation and sporadic growth.

It came as no surprise then when Abe's prescription to repair the economy with massive monetary and fiscal stimulus sent the Tokyo market on a tear.

And now, stocks such as MonotaRo Co (3064.T: Quote), M3 Inc (2413.T: Quote), Kakaku.com Inc (2371.T: Quote), GMO Payment Gateway Inc (3769.T: Quote), and Start Today Co (3092.T: Quote) are getting a new tailwind as "Abenomics" puts the spotlight on greater return on equity.

"These are entrepreneurial companies with founders in there, first-generation founders in many cases," said Roger D. Edgley, a portfolio manager at Wasatch Advisors, which is based in Salt Lake City. This can mean they are nimbler than more established, and bureaucratic, Japanese companies, he said.

This agility eliminates a major obstacle, especially when firms make big investments such as M&A or overseas expansion.

"Some of these companies are change-makers," said Edgley, who owns stock in all five of the companies and manages more than $2 billion in the firm's international growth strategy.

In January the Japan Exchange Group, the owner of the Tokyo Stock Exchange, launched the JPX-Nikkei 400 Index, which focuses on stocks with higher ROE. After a slow start, the index is attracting attention after Japan's Government Pension Investment Fund, the world's largest pension fund, adopted the JPX-400 as a benchmark for some of its passive stock investments.   Continued...

Pedestrians look at an electronic board showing stock prices outside a brokerage in Tokyo February 18, 2014. REUTERS/Yuya Shino