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The future of Japan’s market starting from raising levels of small cap markets: expectations for the market restructuring

2022.01.24

Shinichiro Hidaka

Shinichiro Hidaka

Chief Fund Manager, Small Team, Domestic Stock Group, Equity Investment Division,Mitsubishi UFJ Kokusai Asset Management Co., Ltd.

The future of Japan’s market starting from raising levels of small cap markets: expectations for the market restructuring
Shinichiro Hidaka

Shinichiro Hidaka

Chief Fund Manager, Small Team, Domestic Stock Group, Equity Investment Division,Mitsubishi UFJ Kokusai Asset Management Co., Ltd.

I’m pleased to express my view on the TSE’s market restructuring into new market segments, from the standpoint of managing investments in domestic small cap stocks.

“Empathy” that leads to increasing the liquidity

While there were multiple small cap market divisions whose concept and positioning in relation to TSE Second Section, JASDAQ, and Mothers were ambiguous, such market divisions are restructured so that new market segments, including their relevant listing criteria, become easy to understand.

Mothers has been a market where startup ventures could easily become listed. For more than 20 years since its establishment, Mothers has played a role of producing many growing companies, yet I also got an impression that Mothers-listed companies have rarely grown to outperform large companies. It was also true that there are many companies for whom it seems “an IPO is the goal.” Investments are concentrated in certain companies, and it seems that investors are not looking at the entire market.

New market segments place importance on the liquidity. The first step for increasing the liquidity would be as follows: growth of companies contributes to making life and society better, and investors, regardless of whether they are individual investors or institutional investors, can feel empathy for it. That would be the starting point. To that end, it is important for companies to continue to send information, regardless of the market segments.

In addition to the Prime Market, I believe that raising the levels of also the Standard and Growth Markets will lead to vitalizing Japan’s stock market as a whole. Especially, I hope that the Growth Market builds an image of a new market where there are many companies with new technologies and unique business models.

Expecting significant changes in the Standard Market

It seems prior media coverage created a negative image of the Standard Market as the market for companies that are not qualified for listing on the Prime Market. However, it would be the Standard Market that we can expect the largest changes after the transition into new market segments. It is not only because of their motivation for taking on another challenge of applying for listing on the Prime Market. I assume that a certain percentage of JASDAQ-listed companies will move to the Standard Market, and this group of companies used to be subject only to General Principles of the Corporate Governance Code. In the Standard Market, all Principles will be applied to them.

In the past, triggered by introduction of the Corporate Governance Code, return on equity (ROE) of listed companies has improved overall. Since companies in the Standard Market are presumed to increase corporate value by improving their governance, a similar effect is anticipated. In fact, as for small caps with a faster pace of change, I expect a greater effect on the improvement.

Companies have prepared for listing on new market segments in the midst of COVID-19. When things go back to normal, I anticipate a bright future of the Japanese market starting from raising the level of small caps as I mentioned earlier.

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