Tokyo Exchange's Efficiency Push Reshapes Corporate Japan; Hedge Funds Retreat from Asia


The Tokyo Stock Exchange's (TSE) demand for better capital efficiency is significantly altering Japanese corporate strategies. Kei Umeda of Mizuho Financial Group reports a sense of urgency among companies as they prepare for the TSE's January list of firms with effective capital usage plans. This response aims to tackle the persistent issue of undervalued stocks in Japan.

Only 20% of top-tier companies had declared specific efficiency strategies by July. Although TSE's request isn't legally binding, its impact is profound, with businesses keen to avoid appearing as laggards compared to their peers. Nearly half of the listed companies trade below their book value, triggering a rise in actions like share buybacks, dissolution of cross-shareholdings, and management buyouts to privatize, thus avoiding shareholder scrutiny. Mizuho Trust observes increased demand for its finance consulting services, assisting companies in enhancing their price-to-book ratios. 2022 witnessed record management buyouts in Japan, totaling 1.19 trillion yen.

Simultaneously, global hedge funds are retracting investments from China and broader Asian markets. Goldman Sachs notes that these regions experienced the most significant net sales by hedge funds in November, continuing a four-month trend of divestment from Chinese equities. Despite global market rallies, Chinese and Hong Kong indices have been declining due to economic and property sector concerns. However, there's a slight positive shift, with reduced foreign capital outflows from mainland China in November compared to previous months. These shifts in the Asian financial markets indicate a dynamic economic environment, closely monitored for future trends and opportunities.

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