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Tokyo Exchange spurs corporate strategy shifts

The Tokyo Stock Exchange’s push for improved capital efficiency is prompting significant strategic shifts among Japanese companies, as highlighted by Mizuho Financial Group’s trust banking chief, Kei Umeda. In anticipation of the TSE publishing a list of compliant companies in January, many firms are hastily devising action plans to avoid being labeled as underperformers. This initiative aims to address the high prevalence of undervalued stocks in Japan, a problem that has long plagued the market.

As of July, only 20% of companies in the top “prime” section had disclosed specific measures for boosting capital efficiency. This move by the TSE, while not legally binding, wields considerable influence. Many companies are concerned about their standing relative to industry peers, with about half of listed firms trading below book value. Consequently, there’s a noticeable increase in strategies like share buybacks, dissolving cross-shareholdings, and even management buyouts to go private, escaping shareholder scrutiny.

Mizuho Trust has witnessed a surge in demand for its corporate finance consulting services, with 60 to 100 client meetings monthly to advise on improving price-to-book ratios. The year has seen a record 1.19 trillion yen ($8.11 billion) in management buyouts, including Taisho Pharmaceutical Holdings’ $4.8 billion deal.

Global Hedge Funds Retreat from Chinese and Asian Markets

Concurrently, China and broader emerging Asian markets are experiencing a significant pullback from global hedge funds. November saw these regions becoming the most net sold by hedge funds, according to Goldman Sachs. This trend, particularly in Chinese equities, has been ongoing for four successive months, predominantly driven by a reduction in long positions.

2022 has marked a year of net outflows for Chinese equities, contributing to emerging Asia being the region with the largest net outflows globally. Despite a global rally in major indexes fueled by U.S. rate cut optimism, Chinese and Hong Kong indexes have continued their downward trajectory for the fourth consecutive month. Factors such as sluggish economic data and the ongoing property sector crisis in China, coupled with wary investor sentiment despite thawing U.S.-China relations, have contributed to this trend.

Interestingly, while U.S.-listed Chinese stocks and mainland A-shares led the November selloff, it was partially offset by net buying in H-shares. Taiwan also recorded net outflows, whereas South Korea saw the largest net inflows. In contrast, developed Asian markets like Hong Kong, Singapore, and Japan witnessed net purchases.

Despite these challenges, November showed a moderation in foreign capital outflows from mainland China A-shares, a positive indicator compared to the higher outflows in the preceding months.

The recent developments in the Tokyo Stock Exchange and the broader Asian financial markets reflect a dynamic and rapidly evolving economic landscape. As companies and investors adapt to these changes, the global financial community watches closely, anticipating future trends and opportunities in these key markets.

Disclaimer: The information provided in this article is for informational purposes only and should not be considered as financial, tax, or investment advice. It is always recommended to consult with a qualified financial advisor before making any investment decisions. The author and are not responsible for any actions taken based on the information provided in this article. Past performance is not indicative of future results. Investing involves risks, including the potential loss of principal. Always do your own due diligence before making any investment or financial decisions.
Bilgesu Erdem
Bilgesu Erdem
Bilgesu graduated from Ankara University, Faculty of Communication, Department of Radio, Television and Cinema. After working as a reporter for various television channels and a newspaper, Bilgesu is currently working as a content editor at Newslinker. She loves technology and animals.

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