The network reported that with half of listed companies trading at less than book value, the Tokyo Stock Exchange is pressuring companies to review their use of capital, while a survey conducted by “Reuters” showed that about half of Japanese companies are looking to review or restructure their businesses to enhance the value of companies, including… These include acquisitions, amid companies' efforts to improve governance, as the survey results are the latest sign of concrete actions that companies in the world's third-largest economy are looking to take to reform their businesses and enhance their value.
Financial analysts believe, in exclusive statements to the “Eqtisad Sky News Arabia” website, that this trend towards listed companies comes within the framework of the efforts that Japan has been making for years to get rid of the reputation that haunts the stock market, which is seen as a cheap stock market, in addition to the government’s The restructuring aims to encourage stagnant companies in the economy and enhance the country's economic growth.
Enhancing corporate value
In turn, a senior financial markets analyst at Equity Group, Ahmed Azzam, says: “The structural change of companies driven by new mandates from the Japanese government and the Tokyo Stock Exchange will push companies to merge their core businesses with other companies through mergers and acquisitions or even through corporate sales and thus This trend will affect the improvement of capital allocation and enhance the value of companies, as the primary goal of the Tokyo Stock Exchange’s pressure on companies to review their use of capital is to encourage stagnant companies in an attempt to improve the value of listed companies that suffer from being less than their book value.”
Also, the rise in the value of companies can increase their listing value and thus can provide the ability to increase income from investments located in the country, according to financial markets analyst Azzam, who explained that restructuring companies may be encouraging for investors in the long term, but it is not very encouraging. In the short term because it will push companies to decrease their profitability due to increased dividends or even buybacks or stock splits.
But on the other hand, Azzam points out in his interview with “Iqtisad Sky News Arabia” website that the restructuring will certainly be economically beneficial for the country because it will increase the movement of funds and investments within it through the dismantling of joint holdings, the repurchase of shares and other measures, which will contribute to advancing the Japanese economy.
Boost the economy
In response to a question about how this approach contributes to advancing the economy, a senior financial markets analyst at Equity Group answers: “In an attempt to enhance economic growth, especially after the negative readings of this growth and fears of the risk of deflation, restructuring companies may be a step towards restoring confidence in the businesses of companies in particular.” With the multiplicity of joint-stock companies, as well as reducing capital flight, keeping it for investment internally, and attracting more foreign and local investments in the corporate sector.”
Azzam explains that restructuring may be an impetus for financing opportunities, and there may be a decrease in the cost of investment and stability in the financial markets, especially since the rise in stocks in the last period and the Nikkei index reaching historical numbers three decades ago has enhanced the attractiveness for stocks, so there may be greater investments in stocks in the period. Coming.
In general, increasing investment in companies may give an impetus to public investments and markets, which may give an impetus to economic growth, in addition to the possibility of Japan getting out of the deflation trap in the coming period, especially with the possibility of the Bank of Japan changing monetary policy and shifting from negative interest rates and entering the cycle of monetary policy renewal because All that the Japanese government needs is to try to push investments to support economic growth in the coming period in the face of the monetary policy renewal cycle, according to Azzam.
Tokyo market reaches its highest levels in 3 decades
Returning to the global network report, the Tokyo market reached its highest levels in three decades amid expectations that companies will enhance shareholder returns through unbundling common holdings, share buybacks and other measures.
Of the 104 companies surveyed, just under a third said they were looking to combine their core businesses with other companies through mergers and acquisitions, with nearly a quarter looking to sell non-core businesses.
Companies polled said they felt more burdened by listings, with Japan seeing an uptick in management takeovers as companies move to escape shareholder pressure.
For his part, CEO and Chief Investment Officer of ATA Global Horizons, Ali Hamoudi, says: “Over the past decade, the Tokyo Stock Exchange and the Japanese government have made strenuous efforts to improve management in listed companies. These efforts have been praised by investors as a cure for the unusually large number of stocks that… It is trading at less than book value, or less than the value of its assets.”
To this end, the Tokyo Stock Exchange will begin issuing a monthly list of companies that have revealed plans to increase their capital efficiency. The companies have no legal obligation to disclose the plans and will not face penalty if they do not comply, however, publishing the list is expected to serve as a way to “indirectly name and shame” those who do not qualify — and urge them to take action, according to Hamoudi. .
But the important question is: Why is the Tokyo Stock Exchange demanding change now?
The CEO and Chief Investment Officer of ATA Global Horizons answers: “Japan has been struggling for years to shake off the stock market’s reputation as a ‘value trap’ – that is, it was seen as a market for cheap stocks and would remain that way without a significant increase in value. Half of listed companies trade at less than their book value, and the TSE has taken an increasingly proactive stance to combat this, tightening listing standards for its “main” division, raising the required market capitalization and free float, and implementing stricter disclosure rules around governance, diversity and sustainability.”
For this reason, the Tokyo Stock Exchange called for improving capital efficiency by listed companies in March 2023, but only 20 percent of companies listed on the “main” market revealed specific measures by July 2023, and here Hamoudi wonders… Why does the Stock Exchange not apply sanctions to companies? Non-compliant? He himself answered the question by saying: “Unlike other countries, companies in Japan tend to respond to the policy of 'shaming' and regulators often use this practice to push companies to change their behavior.”
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