The story of Japan’s corporate governance reform has been in progress since 2023, but for the team at Zennor, much of the value remains largely underappreciated.
The Tokyo Stock Exchange introduced new guidelines in 2023 for Japanese companies; share buybacks, management buyouts and dividend payouts have risen. This has been reflected in a rising stockmarket.
According to data from FE fundinfo, the Nikkei 225 index has risen 97.8% over the past three years, while the TSE Topix has also surged 70.2%, both in sterling terms, as corporate governance has made its way up the agenda.
See also: Zennor to launch new large-cap Japanese fund
But the corporate governance reforms still have further to go, according to the Zennor team.
Nicolò Vezzoso, joint portfolio manager of the newly-launched Zennor Himawari fund, said: “Japan’s corporate revolution is more than just about share buybacks or M&A. Value isn’t missing – it’s hidden.
“The discounts on offer reflect trapped capital, not poor businesses.”
However, despite this backdrop, Japanese equities still represent a tiny proportion of global indices, at just 5.2% of the MSCI ACWI at the time of writing. Even when managers take exposure to this section of the market, they tend to focus purely on a handful of well-known names, according to the Zennor team.
David Mitchinson, CIO at the firm, said: “Large global funds focus on the top 30 Japanese stocks, leaving many high-potential businesses overlooked.
“Some companies with $6bn market caps have no analyst coverage at all, which underlines the untapped value in this market.”
Paired with a positive macro backdrop, this rally could have further to run. As the corporate governance reform story continues, Japanese companies are unwinding cross-shareholdings and trying to make better use of dormant assets, all of which should encourage further growth.
With a more stable currency and increased interest from foreign investors, large-cap Japanese companies seem to be in a favourable environment.
Vezzoso said: “Exceptional excess cash and non-core assets in Japan offer a clear path to earnings growth and multiple expansion, if capital is put to work wisely.”
The team’s newly-launched Zennor Japan Himawari fund aims to offer investors direct access to this “hidden value”, with a focus on cash-rich companies from Japan’s 350 largest names. The fund officially launched in June 2026.
