Japanese Equity in Line for a Major Shake-Up in Decades

TOKYO, Japan – The Japanese equity markets are expecting one of the biggest shake-ups it will ever experience after several decades, in line with the plans to draw-in a new boost of capital by giving foreign investors well-governed stocks and an index of liquid assets.

The chief financial regulator of Japan expressed his vision during an interview, stating that the new Premium market is expected to be a substitute for the first section in the Tokyo Stock Exchange as well as the exception of non-liquid assets from the benchmark Topix index.

The plan by Toshihide Endo would help provide global investors an easy and convenient way to buy and sell the best in corporate Japan, which will hopefully boost the equity values and provide positive effects for the businesses in the Japanese stock market.

According to Mr. Endo, who took over the commissioner position of the Financial Services Agency last year, the benchmark Topix index is composed of all stocks under the first section of the Tokyo Stock Exchange. However, the commissioner said that 2,000 of the stocks under the first section of TSE are non-liquid.

Further, Mr.Endo said that the upcoming Premium section would help maintain the target for the global market players. Once the section is in place, the Topi index will be built majorly out of shares on the Premium market.

On the other hand, stockbrokers think that changing the Topix index will most likely create a major shakeup in the market, especially in the months before the change is set to happen as market players start pre-adjusting their portfolios.

The adjustment for the Topix index is also expected to have a significant effect on the Bank of Japan, which is using the Topix benchmark as a standard for its $55 billion (six trillion yen) annual equity purchases.

Most of the Japanese companies have listed stocks on TSE’s first section due to the easy and convenience prestige it offers, especially when it comes to recruiting staff and getting credit access.

Mr. Endo further explained the upcoming changes in TSE. He said that reform in the Topix index and the market structure are two different and separate things. First, he explained, that the market will be divided into segments, the Growth, Standard, and Premium, which are based on their size and governance. Then, according to Mr. Endo, the Topix index would be build from Premium companies and firms with enough assets.

Mr. Endo further stated that for international investors, the companies and firms that are on the same level of governance with the same size should be grouped together.