Fund managers will find it tougher in the new post MiFID2 world to discover new companies in Japan. The sell-side research houses are likely to focus less and less on the one part of the market that clients are likely to be interested in – smaller medium sized enterprises which have unique business models exploiting the slow to change direction super tanker large caps. As a result many corporations will stick to traditional investor relations (IR) behaviour. Producing quarterly results and annual reports will not be enough. As stockbrokers become disincentivized to promote the same corporations they used to go out of their way to support by hosting IR roadshows, the companies will have to take it upon themselves to fill the gap. To that end IR will become PR.
Instead of buy-side analysts running complex forecasting tools, perhaps they would be better off covering off which corporations are actively promoting themselves relative to others. Surely those companies proactively contacting investors and providing them with up to date and relative updates will gain much more mind-share than those that don’t. Do not think for one second that time poor investors and fund managers won’t make time for those companies that make time for them. It is tough enough trying to fight off the onslaught of ETFs internally so wherever a corporate makes decision making simpler and time efficient it is not unbelievable to think that those stocks (provided they follow through with the earnings) won’t trade at a relative premium to those that stay behind the comfort of their own desks, despite in their eyes providing the minimum requirement of information.
Meeting one successful internet database company in Japan recently, I questioned why a company that had seen its revenues grow 70% in 3 years had seen a share price drift 40% lower. The IR team were worried why they had seen such a drop off in client contact. It wasn’t that it had poor results. It was that it was sticking to a stale script and a liquidity drifted below crucial levels, the stock was being dumped on that alone. The irony was that the smallest division that was growing the fastest was on the back page even though it was growing 5x faster than any other division and at twice group margins. For a simple tweak in its PR material, the stock would light up. Still the company intends to stick to convention (for now).