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In FY2009, the waning of the global financial crisis and higher expectations for an economic recovery triggered a share price rally, helping the Nikkei Stock Average recover to the 10,000 range for the first time in eight months in June. Stocks remained on an uptrend after that, buoyed by expectations for a rebound in corporate earnings, plus new highs in overseas stock markets. However, share prices headed south during the latter half of the year due to tighter financial regulations, murkier visibility for the US economy, and the resultant appreciation of the yen against the dollar. Improvement in US and Chinese economic indicators supported another upswing in equities early in 2010, but shares remained trapped in a narrow range after that due to greater uncertainties regarding Greece's financial conditions. The Nikkei Stock Average ended the fiscal year at 11,089, 37% above the 8,109 recorded at end-March 2008.
FY2009 also brought a sharp increase in equity financing by listed Japanese firms. New share offerings plus secondary offerings totaled Y6.3 trillion during the year. These market conditions supported steady year-on-year profit growth at Daiwa Securities, the retail arm of Daiwa Securities Group. Expansion was underpinned by investor interest in emerging market stocks, especially from Asia and Brazil, higher sales of investment trusts related to those regions, and increased sales of foreign currency-denominated bonds. Daiwa Securities Capital Markets, the wholesale brokerage unit, benefited from a high number of equity financing projects, plus gains on the sale of Sanyo Electric shares. The division moved well into the black in FY2009, following losses the previous year. As a result, Daiwa Securities Group reported consolidated ordinary income of Y102.9 billion and net income of Y43.4 billion. The annual dividend came to Y13 per share, with payouts of Y5 per share for shareholders of record at end-1H and Y8 for those at end-2H. FY2009 was a milestone year for Daiwa Securities Group from several different angles. First, we announced a new medium-term business plan in April. Three months later, we made our first new share offering to public investors in roughly two decades, significantly bolstering our capital base with an eye on future earnings growth. Then, in September, we decided to dissolve our ten-year joint venture with Sumitomo Mitsui Financial Group, causing our wholesale operations to make a new start as Daiwa Securities Capital Markets in January 2010. Daiwa Securities Group has embarked on a critical initiative to underpin sustainable growth. Our vision revolves around significantly expanding our Asian operations. We aim to make Asia, including Japan, our home marketplace. Daiwa Capital Markets is spearheading these efforts by greatly increasing headcount and capital at its local subsidiary in Hong Kong. Daiwa Securities Group has a long history of supporting the development of regional economies, the establishment of securities markets, and human resource development in Asia. We have deep roots in the region, having operated in Hong Kong for 40 years, Singapore for 38 years, and Beijing for 27 years. Asia's rapid economic growth makes the timing especially fortuitous. We plan to strengthen and make the best use of our earnings base and network in Asia, aiming to develop world-class investment banking operations in Asia. Daiwa Securities, the group's retail arm, increased its assets under custody by leveraging the group's strengths to improve its product and service lineup. For example, the firm has been selling vaccine bonds and water bonds to individual investors under its Impact Investment initiative. The initiative focuses on developing new investment vehicles that generate financial returns while addressing social problems such as poverty and environmental degradation. Daiwa Securities Group has an extremely high share of domestic sales of foreign currency-denominated bonds that support social and environmental projects. We will keep focusing on offering competitive products and services that contribute to society and help differentiate us from peers. Both companies in the asset management division, Daiwa Asset Management and Daiwa SB Investments, reported that net inflows into investment trusts increased sharply in FY2009. The division plans to continue strengthening product development and sales support in a bid to keep this trend intact. We are committed to strengthening our Asian operations, but we recognize that the road will be challenging. Many major global financial institutions are also expanding in Asia, creating an extremely difficult competitive environment. However, we feel that our base in Japan gives us a geographical and cultural proximity to the rest of Asia, and we are pleased to have a strong customer base in Japan as well as a robust network and a long history in the Asian region. We are striving to maximize these strengths and integrate the group's skills and expertise in all business fields. Thus, we hope to build an unshakable earnings base in Japan and the rest of Asia, supporting sustainable growth. We look forward to your continued guidance and support.
June 2010
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