Japanese Stocks: AGM Season Approaches, Preferential Shares Show Defensive Attributes
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Japanese Stocks: AGM Season Approaches, Preferential Shares Show Defensive Attributes
Goldman Sachs' weekly Japan strategy note highlights that companies with low AGM approval rates saw rating improvements this year, and preferential shares outperformed the broader market during pullbacks.
- TOPIX target maintained at 4,400 points (12 months)
- Low AGM approval rate screening portfolio improved ratings this year
- Perk + Dividend portfolio outperformed No-Perk portfolio by 12ppts
- Domestic institutions and individuals are net buyers; foreign investors are net sellers
- Overweight Utilities, IT Services, Banks, and other sectors
Report interpretation
Overview
This report is Goldman Sachs' weekly Japan strategy outlook, focusing on the impact of the Annual General Meeting (AGM) season and the defensive performance of 'preferential shares' (Yuutai) during market pullbacks. The report updates the TOPIX index target, provides overweight or underweight recommendations for various industry sectors, and tracks market fund flows and valuation levels.
Core views
AGM Season Observations: June 23-26 marks the peak of AGMs. Among the 12 companies with the lowest AGM approval rates last year, 10 saw improved approval rates this year. The low approval rate screening portfolio outperformed TOPIX by 13ppts prior to the Iran conflict but lagged behind during the AI-driven rebound after April. Defensiveness of Preferential Shares: Since the release of the relevant strategy on June 3, the Perk + Dividend screening portfolio has outperformed the No-Perk + No-Dividend portfolio by 12ppts and TOPIX by 4ppts, confirming its defensive attributes. In this week's pullback, domestic demand defensive sectors (Food & Beverage, Retail) performed best, while AI and Technology (System Integration, Apple Supply Chain) performed worst. Fund Flows and Allocation: During the week of June 1-5, domestic institutions and individuals were net buyers of JPY 214 billion and JPY 298 billion respectively, while foreign investors were net sellers of JPY 65 billion. Sector allocation suggests overweights in Electric Utilities & Gas, IT & Services, Banks, Electrical Machinery, and Steel; underweights in Food, Pharmaceuticals, Transportation, Automobiles, Energy, Real Estate, etc.
Analysis framework
The report uses a screening approach to analyze the relationship between changes in AGM approval rates and stock performance. It validates the effectiveness of specific factors during market pullbacks by constructing thematic baskets (e.g., Perk + Dividend vs. No-Perk + No-Dividend). It also combines fund flow data (TSE data) and sector valuation/earnings revision momentum for comprehensive judgment, using an equal-weighted index to track the more liquid Japanese stock universe.
Methodology notes
AGM Approval Rate Screening
By screening companies with the lowest AGM approval rates in the previous year, observe their governance improvements and stock performance in the current year as an indicator for predicting shareholder-friendly activities.
Perk + Dividend Factor
Use shareholder perks (Yuutai) and dividends as stock selection factors to construct portfolios testing their defensive capabilities during market downturns.
Sector Fund Flow Analysis
Analyze net buy/sell data from different investor types (foreign, domestic institutional, individual) to judge market fund preferences and support strength.
Key data
- Current TOPIX Level3,882As of June 12
- TOPIX 12-Month Target4,400Implies approx. 13% upside
- Excess Return of Low AGM Screening Portfolio13pptsRelative to TOPIX prior to Iran conflict
- Excess Return of Perk + Dividend Portfolio12pptsRelative to No-Perk portfolio since June 3
- Net Selling by Foreign Investors65 billion JPYWeek of June 1-5
Impact & implications
The report suggests that the AGM season may bring catalysts for governance improvement, making companies with low approval rates worthy of attention. Allocating to preferential shares can provide defensiveness when market volatility increases. Fund flows show domestic investors supporting the market, while foreign capital flows out in the short term. Sector-wise, it recommends shifting to defensive and reasonably valued sectors such as utilities and banks, avoiding high-valuation tech and sectors heavily influenced by external demand.
Risks
- Geopolitical conflicts (e.g., Iran conflict) affecting market sentiment
- AI theme fading leading to tech stock pullbacks
- Continued outflow of foreign capital
- Exchange rate volatility risk
What to watch
- Corporate reactions during the AGM peak period of June 23-26
- Changes in foreign fund flows
- TOPIX Earnings Revision Index
- Yen exchange rate trends