Japan's Cross Shareholdings on the Rise Again

Cross ownership of publicly traded shares in Japan -- which was on the decline in the country's depressed economy in the 1990s when banks no longer could afford to maintain ownership of stocks at depressed prices -- is on the rise again. As of the end of September 2006, corporate equity ownership was up 17% year over year. According to Nikkei, in the past 2.5 years, cross-ownership has increased 31%, mainly as a tool to discourage hostile takeovers.

Cross share ownership has been considered a unique characteristic of Japan's equity market that serves to preserve the old corporate Keiretsu culture. What does this return mean to institutional investors? Will they have to watch liquidity factors more carefully?

Good Outlook for 2007 M&A
According to FT Adviser, fund managers at Martin Currie arepositive about the outlook for Japan M&A this year. Mr. Millar, head of the Japan fund at the firm, says:

“M&A was a steady and supportive theme in 2006, and it has the potential to drive the Japanese market this year. There is an ongoing trend of companies selling low-return businesses, even where there are strong historic links. The frequency of deals is increasing.”