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Japan’s stocks have been outperforming, and the combination of many cheap cyclical stocks and strong balance sheets offers reason to believe they will continue to

The Nikkei 225 index is now outperforming the S&P 500 for the year to date in dollar terms by around 4 percentage points. International investors don’t seem to have particularly noticed.

The entire surge in international purchases of Japanese equities recorded from late 2012 to mid-2015, totaling around $240 billion, has melted away in the subsequent years. And foreigners have again sold more Japanese stocks than they bought this year.

That may sound like a surprise to readers who have noticed a distinct turn toward optimism from banks and asset managers looking ahead to 2021. And, indeed, there are many reasons to be optimistic.

The recovery story that most analysts and investors seem prepared for would be good news for Japanese stocks. Analysts at BCA Research note that almost 40% of the MSCI Japan is made up of industrial and consumer discretionary stocks, compared with more like 20% in the U.S. The index has a price to earnings ratio of a little over 18, compared with a little below 24 for the U.S., and is more cheaply valued even on a sector-by-sector basis

The market is also notably cash rich, allowing for more shareholder-friendly dividend and buyback policies than companies in Europe and the U.S. may be able to manage. Both European and U.S. stocks have total debt to total equity ratios in excess of 110%, while Japan’s is below 90%. There are no magic numbers when it comes to corporate leverage, but servicing debt and dealing with any increase in spreads is now clearly a greater concern elsewhere in the developed world.

That cash-richness also provides a significant buffer in the event anything with the recovery outlook goes wrong. In the case of vaccine-related setbacks, for example, the stocks’ strong financial positions would be valuable.

The current period of strong performance may eventually revitalize foreign interest. International purchases of Japanese equities are pro-cyclical, meaning that purchases follow periods of strong performance, according to analysis by Travis Lundy of Quiddity Advisors, publishing on SmartKarma.

For Japan bulls, tomorrow is always the time when Tokyo will finally break out again. But judging by recent market movements, the latent potential in Japanese equities may be translating into performance.

If international investors can see the light, too, the upside will be all the greater.

Patrick Drahi’s opportunistic offer to take Altice Europe private highlights the governance risk when investors play second fiddle to a controlling shareholder

Investing alongside a billionaire co-owner can be a smart way to ensure that management stays focused on shareholder interests. Except when the billionaire turns the tables.

Patrick Drahi, the Franco-Israeli controlling shareholder of the Altice cable empire, is trying to take his European company private at an opportunistic valuation. This should serve as a warning to investors in Altice USA, ATUS 0.20% Mr. Drahi’s U.S. company: There is little to stop the same thing happening to them.

Mr. Drahi launched his offer for the shares he doesn’t already own in Altice Europe ATC 0.92% in September. The price was €4.11—a 23.8% premium to the previous close, a press release noted. But the share price was as high as €6.74 in February. European telecom companies haven’t escaped the Covid-19 crisis, and Altice Europe stock fell farther than most because of its high leverage.

True, the deal’s earnings multiple is ahead of where Europe’s former state telecom monopolies are trading in a deeply depressed sector. More pertinently, though, it is well behind those of transactions done in recent years by Altice Europe’s closest peer: Liberty Global, the European investment vehicle of U.S. cable entrepreneur John Malone, who helped inspire the Altice ventures.

Still, Mr. Drahi owns 77.58% of Altice Europe, giving him substantial sway with its management. Having persuaded them that €4.11 is a fair price, the question is whether he even needs to convince minority shareholders. The Netherlands, where the company is listed, has a famously flexible corporate-governance regime.

One investor is betting that Dutch law will nonetheless force Altice Europe to reassess the price. Lucerne Capital Management, a Connecticut hedge fund that bought into the 2014 initial public offering of Altice Europe, wrote an angry open letter to its board last week and plans to file court orders within days. The market anticipates a sweetener: The shares are trading roughly 8% above the offer price.

History could be repeating itself: In 2016, Altice Europe launched an offer for the shares it didn’t already own in SFR, a French mobile network, at a 3% premium to the previous share price. Enough investors complained that the market regulator blocked the deal. The company ended up with full ownership anyway by buying SFR stock from enough investors privately that it could launch a formal “squeeze out.”

Mr. Drahi has a record of contentious transactions with the companies he controls. This year, a disgruntled shareholder filed a suit against Altice USA for paying Mr. Drahi nearly $58 million in equity over a two-year period. The company said this is fair compensation for his work.

Altice USA was floated out of Altice Europe in 2017 as a U.S. acquisition vehicle. It hasn’t done as many deals as it would have liked, and its share price has only recently risen back above the IPO level after years below water. Management sees the stock as undervalued. It isn’t inconceivable that Mr. Drahi could take his European playbook across the Atlantic.

Investors often shrug off governance concerns if they can share the success of a smart and engaged controlling shareholder. They have a reason: Studies have shown a record of stock-market outperformance at family-controlled companies in Europe. But a tycoon with a record of clashing with minorities is a good place to draw the line.

New guidance from the regulator states that a tip must offer insight ‘beyond what would be reasonably apparent’ from publicly available information

A new Securities and Exchange Commission rule interpretation threatens to weaken the incentive for external whistleblowers to come forward with details about potential corporate fraud, tipsters and lawyers who represent them said.

The clarification, which goes into effect Monday, states that a whistleblower’s tip has to offer insight “beyond what would be reasonably apparent” to the agency from publicly available information. That worries whistleblower lawyers and tipsters who have received awards. They fear the clarification could make it harder for tipsters from outside of a company to be awarded in a fast-growing program where the odds of getting a payout are already long.

Anyone with original information of potential financial wrongdoing can submit a tip to the SEC. The cash-for-tips program has attracted tips from company insiders as well as outside experts who scrutinize corporate filings, such as forensic accountants and Wall Street analysts.

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In its new guidance, the agency said it would consider whether a whistleblower’s conclusion derives from multiple sources, “including sources that are not readily identified and accessed by a member of the public without specialized knowledge, unusual effort, or substantial cost.” The sources must also collectively “raise a strong inference of a potential securities law violation that is not reasonably inferable” from any single source.

Whistleblowers and their attorneys are concerned that the interpretation could give the commission greater scope to reject payouts and raise the bar for potential awards so high that some tipsters might be discouraged from coming forward.

“It’s a sliding scale and it’s so subjective, and I think that’s what is worrisome to me,” said Harry Markopolos, a former derivatives portfolio manager who began alerting regulators to Bernard Madoff’s multibillion-dollar Ponzi scheme years before it was publicly exposed and an advocate for creating the SEC’s whistleblower program.

Mr. Markopolos said, however, he understood why the SEC would adopt stricter language, as third-party evaluation is highly specialized work.

“It’s a higher burden of proof and it should be,” he said. Mr. Markopolos, who since Mr. Madoff’s arrest has pursued cases of alleged corporate wrongdoing and submitted at least five tips based on independent analysis to the SEC, said he doesn’t think the clarification will affect his own efforts to win an award.

The SEC program has grown rapidly since it began in 2011. The program, created by the Dodd-Frank Act, has given out at least $728 million to 118 individuals. It set a new record in the fiscal year ended Sept. 30 with 6,911 tips, and has received an average of about 4,400 annually over its nine-year history, according to a Wall Street Journal analysis of SEC data.

The odds of winning an award for somebody submitting a tip to the program were less than one-third of 1%, according to law firm Labaton Sucharow LLP.

Nine whistleblower awards have been given to individuals for providing independent analysis that led to successful enforcement actions, according to the SEC data.

Jane Norberg, chief of the SEC’s whistleblower office, said the agency recognized the “incredibly valuable” independent analysis by outsiders that helped it bring enforcement actions against companies.

“Simply providing a publicly available document is not enough,” Ms. Norberg said. “It needs to be more. It needs to reveal insight into the securities law violation that isn’t evident from the face of that public document.”

An SEC spokeswoman said “requiring additional analysis to publicly available information in order to qualify for an award is how the commission has been approaching this issue for years.”

Two Democratic commissioners who dissented during the vote for the rule amendments in September called the clarification problematic. “I worry this guidance will inadvertently impact the perception of the type of information the commission considers valuable,” Commissioner Caroline Crenshaw said at the time.

Ms. Crenshaw argued that the focus for the SEC should instead be on the quality of the information and the analysis provided by the tipster. “The amount of data and information available to the commission is extensive,” she said at the time of the vote. “Given that, we should not focus on whether the staff could have inferred the information from what was provided, but whether the staff actually did infer the information prior to getting the submission.”

For one of the cases that Mr. Markopolos submitted to the SEC—concerning what he suspected to be a Ponzi scheme—agency staff told him the case wasn’t robust enough to meet the requirements of an independent analysis. Mr. Markopolos hired an expert in the relevant area to address the problem.

“You have to go down a lot of paths and a lot of blind paths, without success, to come out with something fruitful for a third-party independent analysis that qualifies under this program,” Mr. Markopolos said. “It’s a lot of work. Cases aren’t done in hours or days. The cases are done in months and seasons.”

The SEC hasn’t disclosed its decisions regarding the tips that Mr. Markopolos has submitted to the SEC based on independent analysis, in keeping with its policy. He has received an award from the SEC and filed at least two applications for claims of awards, he said. The SEC spokeswoman declined to comment.

Edward Siedle, a former SEC attorney who won a $48 million SEC whistleblower award in 2017 for helping provide information leading to an enforcement action against JPMorgan Chase & Co. for failing to disclose conflicts of interest, said staffing and resource limitations at the SEC mean some outside experts are better equipped to do the kind of forensic analysis that is often required to uncover wrongdoing.

Mr. Siedle, who now runs his own law office representing whistleblowers and has submitted about 20 tips to the SEC based on independent analysis over the years, said he imagined the SEC was inundated with possibly frivolous claims. But limiting awards could discourage people from coming forward, he said.

“The program is so incredibly powerful, so incredibly profitable to the SEC, so incredibly beneficial to investors, that this is not an area where you need to be concerned about cutting back on the input you’re getting from the public,” Mr. Siedle said.

US hotel operator to swell portfolio by a third in the region as it targets leisure travel

Hyatt, the US hotel group, is pressing ahead with its most rapid expansion in Europe to date, with plans to extend its portfolio there by at least a third over the next three years despite suffering record losses due to the pandemic.

The company will add more than 20 hotels to its 63-site European estate targeting mostly leisure travel, as the industry expects a long-term drop in business trips with more executives using video conferencing.

The average development cost of each hotel will be about €900m, Hyatt estimated, with property owners shouldering the majority of the expense.

“We believe there is a pent-up demand to travel. Once we get the therapeutics, we get the vaccines and so forth there will be growth,” Peter Fulton, Hyatt’s European group president, told the Financial Times.

That demand would initially come from “in-country” leisure travel “before people start jumping on planes and travelling all over the world”, he added.

Hyatt, which opened its first European hotel in 1974, this month opened its first site in Stockholm, which Mr Fulton said had been a target for 16 years.

But its European push comes as the industry has endured steep pandemic-induced losses due to restrictions to international travel and government lockdowns that have forced vast numbers of hotels to close.

Hyatt, which runs more than 950 hotels worldwide, has been hit harder than some of its rivals thanks to its skew towards city destinations.

It reported a net loss of $161m in the three months to the end of September, compared with a net profit of $296m for the same period last year and in contrast to a smaller loss of $81m at Hilton Worldwide and a net profit of $100m at Marriott International.

The company has cut roughly 1,300 corporate roles but expects the new developments to create more than 2,000 jobs.

“Because we are more urban focused, we have seen the pandemic hit us a little bit harder as a result, but we also think we will bounce back a little bit better,” Mr Fulton said.

Kevin Kopelman, an analyst at Cowen investment bank, said that news of a coronavirus vaccine being approved had increased confidence in the hotel sector’s recovery “as pent-up demand more than offsets lagging business travel”.

Hyatt said that the UK remained a “priority market” for the group despite fears that Brexit could diminish London’s status as an international hub.

Peter Norman, senior vice-president of acquisitions and development at Hyatt, said: “The dynamic is one of the UK being a place to visit and a springboard to the rest of Europe. It’s still a good starting point especially if your main language is English.”

The planned expansion will see Hyatt double its UK footprint with hotels opening at the Battersea Power Station development and as part of a £1.3bn regeneration scheme at London’s Olympia exhibition hall.

It will also open hotels in nine countries it has not previously had sites in including Finland, Cyprus and Malta.

Leading parts supplier says speed of change is putting 30,000 jobs at risk

Continental, one of the world’s largest car suppliers, has warned the transition to electric vehicles is happening too rapidly and at the expense of people’s livelihoods.

Ariane Reinhart, the German group's head of human resources, told the Financial Times that environmental regulations, although necessary, were coming so fast “we cannot compensate for it in terms of employment”.

The Hanover-based parts-maker is struggling to adjust to the car industry’s technological shift, putting 30,000 jobs at risk worldwide, including 13,000 in Germany, as it goes through a painful restructuring and pushes through plans to close entire plants.

“An electric car has a lower employment density than a conventional car,” said Ms Reinhart, who oversees the company’s 230,000 staff.

European carmakers have been forced to quicken the pace of the transition to electric after strict fleet-wide emissions targets were introduced by the EU this year.

Brussels is considering tightening its CO2 reduction target for 2030 from 40 per cent to at least 55 per cent — a move that has been criticised by the German car lobby, the VDA.

Continental expects revenues of more than €37bn in 2020 and an adjusted profit margin of about 3 per cent, despite the challenge of moving to battery-powered vehicles and the devastating impact of the pandemic.

Earlier this year, the group came under fire for continuing to pay a dividend of €3 a share, totalling €600m, even though several thousand workers were put on furlough.

The Dax-listed group is integral to the global car supply chain: four out of five cars worldwide contain its products.

Elmar Degenhart, the company’s outgoing chief executive, has argued that the global car industry will not recover to its 2017 peak for at least another four years, and that drastic cost-cutting is necessary to remain competitive.

Ms Reinhart said Continental’s restructuring plan will not be revised if “the situation does not deteriorate”, but cautioned that the economy remains very “volatile".

On Wednesday, workers’ representatives in Germany accused the company’s management of not showing any interest in alternatives to cutting jobs and focusing only on maintaining an 8 per cent margin.

Separately last week, Ms Reinhart unveiled plans for Continental, whose products have a carbon footprint amounting to 125m metric tons of CO2 a year, to be 100 per cent climate neutral through its value chain by 2050.

The company will also offer parts with a net zero carbon footprint for emissions vehicles from 2022, allowing car manufacturers to offer a more environmentally friendly end-product.

The group did not confirm if a third party would monitor its progress in reducing emissions, but said the targets would be included in its annual and sustainability reports, which are independently audited.

Sterling drops as EU chief negotiator warns that key sticking points remain

Michel Barnier has warned he “cannot guarantee” there will be a Brexit trade accord as Brussels eyed Wednesday as its deadline to seal an agreement and sterling fell on fears that no deal would be struck.

The EU’s chief negotiator, told the bloc’s national ambassadors and MEPs that key sticking points remained ahead of Boris Johnson’s stocktaking call with European Commission president Ursula von der Leyen on Monday evening.

In closed door meetings on Monday morning, Mr Barnier said that around 10 hours of talks with his UK counterpart David Frost and his team on Sunday had failed to yield breakthroughs on the main outstanding issues of fishing rights in UK waters and fair competition rules for business. 

He dismissed claims that a deal on fisheries was at hand, despite negotiators working until midnight, and insisted that talks remained difficult. He told MEPs that the talks were now in their final days, with Wednesday the effective deadline, according to one participant at the meeting.

“The outcome is still uncertain, it can still go both ways,” said one diplomat following Mr Barnier’s briefings. “The EU is ready to go the extra mile to agree on a fair, sustainable and balanced deal . . . It is for the UK to choose between such a positive outcome or a no deal outcome.”

Sterling lost more than 1 per cent against both the euro and dollar on Monday, on track for its worst one-day performance since September, on news that the talks remained on a “knife-edge”.

Negotiations resumed on Monday, with time now critically short to get a deal in time for the end of Britain’s post-Brexit transition period on December 31. EU leaders meet in Brussels for a planned summit on Thursday.

In parallel to the negotiations, UK Cabinet Office minister Michael Gove arrived in Brussels to discuss the implementation of last year’s divorce treaty with the EU, including its arrangements for avoiding a hard border on the island of Ireland. 

Increasing the strain on this week’s talks is Mr Johnson’s decision to press ahead with two contentious pieces of legislation that violate the terms of the EU withdrawal agreement. British MPs are expected on Monday to reinstate treaty-breaking clauses in the government’s internal market bill, while on Wednesday the House of Commons will hold its second reading of the taxation bill that also violates the withdrawal deal.

The UK government argues the new laws are necessary to safeguard intra-UK trade in case future-relationship negotiations fail with Brussels. But EU chiefs, such as European Council president Charles Michel, have warned that ratification of any future-relationship agreement will be impossible unless the UK scraps the controversial clauses.

Mr Barnier suggested to MEPs that he believed the offending provisions would be dropped if there were a trade deal.

Outstanding issues include disagreements on fisheries, with the UK resisting EU demands for countries such as France and Belgium to retain their historic fishing rights in the area six to 12 nautical miles off the British coast. The two sides are also still negotiating over the length of a multiyear transition period during which access for EU fishing boats to UK waters would be safeguarded.

EU diplomats said that a new complication had arisen because of British demands relating to the ownership of UK registered fishing vessels.

Mr Barnier told MEPs that the UK is still resisting Brussels’ demands that European companies be able to challenge the British government before UK courts if London breaks its commitments to a “level playing field” for EU and UK companies. 

The EU is continuing to ask for clear guarantees from Britain that the treaty’s restrictions on the use of state aid can be enforced, including by making sure illegal subsidies are reimbursed. Mr Barnier said this was a problem for sectors such as energy and aviation.

Brussels also wants the right to take unilateral action to restrict UK access to the EU market in response to level playing field violations. 

All the best happy endings have a plot twist. So it is in the real-life film business. Cinemas battered by forced closures, nervous consumers staying home, and Hollywood studios delaying the blockbuster releases they depend on, had hoped miracle drugs could save them from extinction. Good news on coronavirus vaccines recently sent shares soaring in debt-laden cinema groups such as AMC, Cineworld and Cinemark. But they plunged last week after Warner Bros said it would debut its films in the US next year simultaneously in cinemas and, for a month, on its HBO Max streaming service.

The Warner Bros move is the most dramatic yet by a Hollywood studio to break with the usual playbook for blockbuster releases and bring them more rapidly into living rooms. Cinema chains have spent years resisting studios’ attempts to reduce the time they can offer new films exclusively — and fighting off demands from Netflix to stream them at the same time. It gives a boost to online viewing and dents cinemas’ narrative that, once vaccine rollouts were well under way, audiences would rapidly rebound — enticed by a backlog of blockbusters such as the Bond movie No Time To Die, delayed from November to next April.

Warner Bros said its move was a one-year plan reflecting the likelihood cinemas would “operate at reduced capacity throughout 2021”. It also seems designed to boost disappointing sign-up rates to HBO Max, which launched in May. Either way, it is a serious blow to film theatre chains. AMC, which also filed last week to raise up to $844m by selling stock to keep it afloat, said it would not allow Warner to boost HBO at the cinema group’s expense.

If vaccines work out as hoped, Warner Bros’ public pessimism on cinemas may prove misplaced. The rebound in audiences in China suggests film-goers are happy to return once they feel safe. Studios also have an interest in seeing them come back. Only cinema networks can generate the kind of revenues needed to make blockbusters costing hundreds of millions of dollars viable.

Hollywood arguably needs cinemas even more next year as it is sitting on a stockpile of big-ticket releases. Even in the age of high-definition TV, moreover, blockbusters are still made for the big screen, and best seen on them. Industry insiders speculate Warner Bros may reverse its HBO Max move — which angered some film-makers — if life returns to normal by summer.

There is strong reason, then, to assume film theatres will survive Covid-19 even if some indebted owners go bust. Buyers, likely to include private equity companies that are used to handling similar restructurings, will surely be found. But cinema numbers are set to fall, especially in the oversupplied US market. Though global box office revenues hit a record $42.5bn in 2019, this was mainly due to increasing ticket prices; audience numbers have largely fallen since a peak in 2002.

The balance of power between the studios, aggressively expanding their streaming services, and cinema operators will also continue to shift. The three big cinema groups have all recently agreed to shorten their fiercely guarded windows for showing films exclusively in cinemas. Even for blockbusters, the window may shrink from months to weeks. Warner Bros’ HBO move is further muscle-flexing.

In the best traditions of the Hollywood disaster movie, cinemas find themselves facing a foe more devastating than any they have encountered before. Bruised and bloodied, and in reduced numbers, they will make it through to fight another day.

Moncler to Acquire Stone Island

The two companies revealed the agreement on Monday.

Stone Island will join Moncler “to develop together a new shared vision of luxury.”

The acquisition points to a new path for Moncler, not long ago considered a target rather than a buyer.

“I have always worked to build a strong brand where uniqueness and closeness to the consumer have been the cornerstones of a development always beyond trends and conventions,” Remo Ruffini, chairman and chief executive officer of Moncler, said in a statement. “Sharing the same vision leads us today to joining forces with Stone Island to write our future together. Led by an entrepreneur of high renown, Stone Island is a great success story, a company that has built an exceptionally strong relationship with its community, offering a highly distinctive product, as a result of unique technical skills and an absolute clarity in its positioning. It is a story of Italian excellence.”

Carlo Rivetti, chairman and ceo of Stone Island, said the company’s headquarter in Ravarino “will remain the beating heart of the brand and a center of excellence that will be further enhanced and my team and I will continue, in our current roles, to do what we have been doing with great passion for many years. This is a partnership that represents a great opportunity for the continued development of both companies and which will help Stone Island accelerate its international growth thanks to Moncler’s experience in both the physical and digital retail world.”

The agreement was signed between Moncler and Rivetex S.r.l., a company referable to Carlo Rivetti, owner of a stake equal to 50.1 percent of Sportswear Company’s capital and other shareholders of SPW, referable to the Rivetti family, owners of a stake equal to 19.9 percent of SPW’s capital.

The agreement values Stone Island at 1.15 billion, corresponding to a multiple of 16.6 times 2020 EBITDA and a multiple of 13.5 times the estimated 2021 EBITDA.

The consideration for the purchase of the shares will be paid in cash by Moncler.

It is also expected that Rivetti, following the closing of the transaction, will join the board of Moncler.

The Italian brand founded by Carlo Rivetti and Massimo Osti blurs the lines between technical wear, streetwear and fashion.

Moncler will acquire rival Stone Island in a transaction valuing the Italian sportswear brand at 1.16 billion euros, the companies said in a statement Monday.

Stone Island’s sales grew 1 percent to 240 million euros in the 12 months ending October 2020, with 28 percent EBITDA, a measure of profit.”

We’re coming together at a challenging moment both for Italy and the world,” Moncler’s chairman and CEO Remo Ruffini said.