Corporate Shakeups Light Up Tokyo Bourse on Down Day for Stocks

The Tokyo Stock Exchange (TSE) recently underwent a significant restructuring, creating three new trading sections: Prime, Standard, and Growth. This move aims to improve market availability and attract more foreign investors. The Prime section, focusing on liquidity and institutional investors, includes 1,841 firms, such as Toyota Motor Corp. and SoftBank Group Corp. The Standard section merges the Second Section and Jasdaq, targeting midsize companies, while the Growth section, formerly Mothers, focuses on up-and-coming firms. Although the reshuffle is unlikely to drastically change the market, it signals the TSE's commitment to enhancing its global standing and luring foreign investment.

Foreign investors, accounting for 70% of trading value on the former First Section, have long awaited companies with great growth potential in Tokyo. The recent TSE shake-up aims to attract more foreign investment by sharpening market focus. However, investors like Hidetaka Kawakita and Masakazu Takeda express skepticism, finding the reform less than attractive. They seek companies driving innovation and growth, not just improved market availability. The TSE's effort to encourage listed companies to pursue growth and strengthen governance is a step in the right direction, but foreign investors remain cautious, awaiting concrete changes in Japanese companies to justify increased investment.

As of October 2024, 379 companies (31% of all Prime Market listings with a fiscal year ending March) have disclosed their responses to the TSE's request, with 242 companies (20%) actively implementing management changes. This momentum may further accelerate, leading to higher stock prices and increased foreign investment. The TSE's upcoming list of companies disclosing their actions (January 15, 2024) and information on good practices will further guide investors in identifying opportunities.

In conclusion, the Tokyo Stock Exchange's recent restructuring is a step towards enhancing its global standing and attracting more foreign investment. While the reshuffle may not drastically change the market, it signals the TSE's commitment to improving market availability and sharpening market focus. As more companies proactively implement management strategies conscious of cost of capital and stock price, the Tokyo bourse is poised to become an even more attractive destination for international investors.