Corporate Shakeups Brighten Tokyo Bourse on Down Day for Stocks

The Tokyo Stock Exchange (TSE) is set to undergo a significant restructuring, aiming to improve market availability and attract foreign investment. This move, slated for April 4, 2022, will create three tiers: Prime, Standard, and Growth, replacing the current four trading sections. This shakeup is expected to boost the Tokyo bourse's global standing and enhance its appeal to institutional investors.

The new Prime section, equivalent to the current First Section, will prioritize liquidity, attracting a broader range of investors seeking stable, predictable returns. Toyota Motor Corp. and SoftBank Group Corp. are among the 1,841 firms placed in this top-tier, signaling a commitment to enhanced market availability and improved capital efficiency.

The Standard section, a merger of the Second Section and Jasdaq markets, will cater to mid-sized companies seeking capital and growth opportunities. This consolidation will increase liquidity and attract a wider range of investors, benefiting firms like Fast Retailing Co. and Keyence Corp. that previously failed to deliver capital efficiency plans. The TSE's request for companies to improve capital efficiency, with 31% of Prime Market companies responding, signals a shift towards better management practices, further enhancing the appeal of the Standard section.

The renaming of the Mothers market to the Growth section signals a focus on nurturing up-and-coming companies. This change aligns with the TSE's aim to improve market availability and attract foreign investment. The new name emphasizes the potential for growth in these companies, which could enhance their appeal to investors seeking higher returns.

The TSE's request for business plans to improve capital efficiency is likely to boost investor confidence and enhance market performance. About 40% of companies on the prime section, including global names like Sony and Hitachi, have responded positively. This demonstrates a commitment to better capital allocation and improved stock price management. Moreover, the TSE's plan to publish a list of companies taking action could further encourage corporate governance momentum, as seen in the case of Toyota and Kyocera, which have announced plans to review cross-shareholdings. This increased focus on capital efficiency and corporate governance is likely to lead to higher stock prices and improved overall market performance.



In conclusion, the Tokyo Stock Exchange's restructuring is poised to brighten the bourse on a down day for stocks. By creating a more liquid Prime section, consolidating mid-sized companies in the Standard section, and renaming the Mothers market to the Growth section, the TSE is fostering a more attractive and accessible market for investors. As companies respond to the TSE's request for capital efficiency improvements, investor confidence is likely to grow, leading to higher stock prices and improved overall market performance. This shift aligns with the author's preference for 'boring but lucrative' investments, valuing stability, predictability, and consistent growth.