A drastic change is imminent in the market. In April 2010, the Tokyo Stock Exchange abolished the current four markets of the First and Second Sections of the Tokyo Stock Exchange, as well as the Mothers and Jasdaq markets for emerging companies. Mr. Tatsunori Kawai, chief strategist at au kabu.com Securities Co. Chief Strategist at au kabu.com Securities, Mr. Tatsunori Kawai, explains.
There are two factors behind the TSE reorganization. One is that the nature of each market had become ambiguous. There was no longer a difference between the 1st and 2nd sections of the TSE, and the difference between Mothers and Jasdaq had also become unclear. The objective is to organize this into three markets with different characteristics. The other reason is the internal situation of the TSE. The more markets there are, the more costly it is to operate the business. By consolidating the number of markets into three, the TSE will be able to reduce costs.
This reorganization will undoubtedly affect the stock prices of the approximately 3,700 companies currently listed on the four markets. The ratio of tradable shares and the market capitalization of tradable shares will be the basis for determining which of the three markets each company will be included in. Mr. Kawai continues.
Mr. Kawai continues, “Right now, the stocks on the first section of the Tokyo Stock Exchange are basically expected to move to the prime market. Investors should pay attention to companies from the 2nd Section, Mothers, Jasdaq, etc. that may be promoted to the Prime market. Which market they are in is of great significance to companies. When a company that was not previously on the TSE 1st section is promoted to the prime market, it increases liquidity, including inclusion by fund groups. Shibaura Electronics, which is a leader in temperature sensor components, McDonald’s Holdings Japan, and KFC Holdings Japan, which operates Kentucky Fried Chicken, are noteworthy.
Listed companies have until December 30 of this year to apply to the TSE for the market to which they wish to belong. The results will be announced by the TSE in January, but some companies have already announced their choice of market. Reimi Shirahata, an analyst with the financial information service Fisco, said.
There are some companies that have already chosen the standard market, even if they are strong candidates for promotion to prime. So you should check out stocks that have not yet chosen a market, but meet the criteria for the prime market. JMDC, which provides medical big data, and Visional, which operates the job search website BizReach, are two examples.
Tatsuo Akutagawa, senior asset coordinator at Asset Management Asakura, says, “Jasdaq stocks are worth watching.
I think Jasdaq stocks are worth watching. In fact, even in the same emerging market, Jasdaq is less popular than Mothers. According to conventional standards, the criteria for listing on the First Section of the Tokyo Stock Exchange are stricter for Jasdaq than for Mothers. As a result, when it comes to IPOs (Initial Public Offerings), it is common to choose Mothers, and as a result, Mothers is more booming.
As a result of the reorganization of the TSE, there is a high possibility that Jasdaq stocks will be transferred to the new market and compared to Mothers stocks, which are overpriced, Jasdaq stocks will be bought because they are undervalued. I think that Anvis Holdings, which operates a terminal care facility called Ishinkan, and Speee, which operates a used real estate quote site called Yewool, are good candidates. I think so.
The TOPIX (Tokyo Stock Price Index), which covers all stocks on the first section of the Tokyo Stock Exchange, is also worth watching.
As a result of the restructuring of the TSE, the criteria for TOPIX will change, and unlike in the past, stocks that do not meet the criteria will be mechanically cut off. This will increase the percentage of top Japanese companies with large market capitalization in the TOPIX, and foreign investors will flow money into these companies, making the strongest companies even stronger. We believe that this will lead to a trend in which strong companies will become stronger. Recruit Holdings and Daikin Industries are good ones to keep an eye on,” says Hideki Wajima, an economic journalist.
Another key phrase is “parent-subsidiary listing. (Hideki Wajima, an economic journalist) “Parent-subsidiary listing” is another key word. This means that both the parent company and its subsidiary are listed. The key word is “parent-subsidiary listing.
There is a movement to dissolve the parent-subsidiary listing because the subsidiary cannot meet the criteria such as the ratio of tradable shares as a result of restructuring. If the subsidiary is an important company within the group, the parent company may make it a wholly owned subsidiary and delist it. When it comes to TOB (takeover bid) by the parent company, the purchase price is usually more expensive than the market. So the idea is to buy the shares of that subsidiary now. For example, Mitsui Kinzoku Engineering, a subsidiary of Mitsui Kinzoku Mining, and Nippon Oxygen Holdings, a subsidiary of Mitsubishi Chemical Holdings. These are all considered important companies within the group, as the parent company owns more than 50% of the shares.
P/B ratio is an indicator to determine whether a company’s stock price is overpriced or undervalued in relation to its assets. PBR is an index that can judge whether a company’s stock price is overvalued or undervalued in relation to its assets. Kazuyuki Suzuki, a stock analyst, said.
The reorganization of the Tokyo Stock Exchange is thought to be aimed at improving the low profitability of companies, which has been criticized for some time. Eliminating the cross-shareholding structure is a shortcut to achieving this. Under the new market system, the ratio of shares in circulation will be important, and there will be cases where large, stable shareholders will sell their holdings. This could lead to changes such as the emergence of “controlling shareholders” among the new shareholders and the active intervention of large, stable shareholders who have been “controlling shareholders. Some companies may even see a renewal of their management teams.
There are many companies in Japan that have the potential and technological strength, but their stock prices are not commensurate with their potential due to the familiar management style that is unique to Japan. The TSE reorganization is likely to be a big stimulus for such companies. Companies with low P/B ratios compared to their potential should pay attention. Examples include Konica Minolta, an office equipment manufacturer, Ricoh, a major office automation equipment manufacturer, and Citizen Watch, a precision equipment manufacturer.
Drastic changes in the market are a good time to invest. The drastic change in the market is an opportunity for investment, and there is no way not to take advantage of it.
From “FRIDAY” December 10, 2021 issue
PHOTO： Takahiro Kagawa, Kyodo News Co.