Japan has been exploring the option of bringing in harsher rules with regards to foreign investment in the country’s stock markets and that has not gone down well with Goldman Sachs. The American investment bank has blasted those proposed reforms and stated that it would not only be harmful to the market but also make it difficult to raise funds. Additionally, the rules would also undo the effect of market reforms that have been taking place over the past seven years.
The Finance Ministry’s new rules have proposed that if a foreign entity is going to buy in excess of 1% in a national security-related Japanese company then it would have to report it beforehand. At this point in time, the threshold is 10%. The Liberal Democratic Party has already approved this particular bill and it must be approved by the cabinet as well. However, it would also need to be approved by both houses of the Japanese parliament, the Diet, for it to become law. If the changes are approved then the new law will come into effect from April of 2020.
This is a new problem for Goldman Sachs, which has had its fair share of trouble in Asia in recent times. Kathy Matsui, the vice chairman of Goldman Sachs Japan stated in a note,
“The implementation of the new regulation as currently proposed could have a substantial negative impact on the Japanese stock market. There is a risk that the new regulations could deter foreign investor participation, causing a decline in market liquidity.”
The bank also pointed out that the implementation of such a law will also raise legal expenses and overall costs considerably. It remains to be seen how other foreign investment banks react to the development.