Japan: Will Stock Prices Continue to Rise
2023-05-22
■Corporate governance reform has entered a stage of achieving results
■In the future, the feasibility of growth strategies will be reviewed through shareholder meetings and financial performance announcements
The Tokyo Stock Exchange continues to hold a follow-up meeting on the market segmentation review. At the 9th meeting held on March 31st, the requirements for measures to consciously manage capital costs and stock prices were announced to listed companies. The 8th meeting held on February 15th required listed companies to accurately grasp their own cost of funds and return on funds, and disclose policy measures and improvement progress. Companies that require a price-to-book ratio (PBR) consistently below 1. In addition, "we do not expect only stock repurchases, increased dividends, or temporary measures, but we will continue to achieve capital returns that exceed the cost of capital and take strict measures to achieve sustainable growth." Clearly stated, this is a medium to long-term measure. In addition, at the 10th meeting held on April 25th, the public awareness status on measures to achieve conscious management of capital costs and stock prices were reported. The annual shareholders' meeting of the company, which ends in the fiscal year of March, is expected to hold a report and discussion meeting around the autumn of this year in response to the company's call. The corporate governance reform has entered an effective stage, and it is expected that the progress of the reform is expected to steadily follow up.
The calculation method for PBR is Return on Equity (ROE) x Price to Earnings Ratio (PER). In order to increase PBR, it is necessary to increase ROE or PER. ROE is calculated as net income/equity, and an increase in ROE requires an increase in net income or a decrease in equity (such as stock repurchases). From the trading situation of the investment department, we can see the trend of foreign investors (accumulated since the beginning of 2022, spot). We found that the net sales in the third week of March this year were about 3.8 trillion yen, but in the second week of May, the net sales decreased to about 0.9 trillion yen. It can be seen that repurchase has progressed rapidly after April, with positions returning to levels around April 2022. It can be confirmed that one of the clues that overseas investors are driving buybacks is the improvement in management efficiency of Japanese companies, such as turning a deaf ear to stocks that announced stock buybacks and increased dividends in the financial results of major companies announced this week. In the future, whether the company can achieve a growth strategy of improving internal profitability to increase long-term ROE will be reviewed through shareholder meetings and financial performance announcements. If the feasibility of growth strategies increases, the time for overseas investors to purchase Japanese stocks may be extended. Therefore, we will closely monitor the progress of business reform in each company.
■In the future, the feasibility of growth strategies will be reviewed through shareholder meetings and financial performance announcements
The Tokyo Stock Exchange continues to hold a follow-up meeting on the market segmentation review. At the 9th meeting held on March 31st, the requirements for measures to consciously manage capital costs and stock prices were announced to listed companies. The 8th meeting held on February 15th required listed companies to accurately grasp their own cost of funds and return on funds, and disclose policy measures and improvement progress. Companies that require a price-to-book ratio (PBR) consistently below 1. In addition, "we do not expect only stock repurchases, increased dividends, or temporary measures, but we will continue to achieve capital returns that exceed the cost of capital and take strict measures to achieve sustainable growth." Clearly stated, this is a medium to long-term measure. In addition, at the 10th meeting held on April 25th, the public awareness status on measures to achieve conscious management of capital costs and stock prices were reported. The annual shareholders' meeting of the company, which ends in the fiscal year of March, is expected to hold a report and discussion meeting around the autumn of this year in response to the company's call. The corporate governance reform has entered an effective stage, and it is expected that the progress of the reform is expected to steadily follow up.
The calculation method for PBR is Return on Equity (ROE) x Price to Earnings Ratio (PER). In order to increase PBR, it is necessary to increase ROE or PER. ROE is calculated as net income/equity, and an increase in ROE requires an increase in net income or a decrease in equity (such as stock repurchases). From the trading situation of the investment department, we can see the trend of foreign investors (accumulated since the beginning of 2022, spot). We found that the net sales in the third week of March this year were about 3.8 trillion yen, but in the second week of May, the net sales decreased to about 0.9 trillion yen. It can be seen that repurchase has progressed rapidly after April, with positions returning to levels around April 2022. It can be confirmed that one of the clues that overseas investors are driving buybacks is the improvement in management efficiency of Japanese companies, such as turning a deaf ear to stocks that announced stock buybacks and increased dividends in the financial results of major companies announced this week. In the future, whether the company can achieve a growth strategy of improving internal profitability to increase long-term ROE will be reviewed through shareholder meetings and financial performance announcements. If the feasibility of growth strategies increases, the time for overseas investors to purchase Japanese stocks may be extended. Therefore, we will closely monitor the progress of business reform in each company.