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Japan Unveils Prime 150 Stocks Benchmark for Value Identification by Investors

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New JPX Prime 150 Index Launched to Strengthen Corporate Governance in Japan


Japan has introduced a new stock index, the JPX Prime 150 Index, aimed at enhancing corporate governance and making it easier for investors to identify valuable companies in the stock market. This curated index includes 150 constituent listings on the Tokyo Exchange, featuring tech giants like Sony Group, Hitachi, Nintendo, and trading houses backed by Warren Buffet such as Marubeni, Itochu, and Mitsui & Co. The index excludes automakers like Toyota Motor and Nissan Motor.

Enhancing Corporate Value

Takahiro Miura, the Japan Exchange Group's market innovation and research director of index business, emphasized the importance of increasing the value of listed companies for the overall expansion and revitalization of the market. The Prime 150 Index represents around half of the Japanese stock market and consists of companies with similar quality to the S&P 500. These companies have comparable price-to-book ratios, return on equity, and earnings-per-share growth rates, with each having a market capitalization of at least 1 trillion yen.

Future Prospects

Miura stated that index-based products, such as index futures and exchange-traded funds, based on the JPX Prime 150 Index, are expected to be available by the end of 2021. This will provide investors with additional investment options and opportunities to participate in the growth potential of these selected companies.

Japanese Market Performance

Japanese stocks have been among the top performers globally this year, with the Nikkei 225 index up nearly 30% and the Topix reaching its highest level in over three decades, gaining almost 24%. This performance has been fueled by investor optimism surrounding the prospect of corporate governance reforms and the potential for greater returns on investment.

Corporate Governance Reforms

The introduction of the JPX Prime 150 Index is part of a broader effort by the Japan Exchange Group to enhance corporate governance in the country. These reforms aim to improve capital efficiency, achieve sustainable growth, and increase corporate value over the mid- to long-term. The focus is on evaluating the cost of capital and profitability based on the balance sheet, rather than solely relying on sales and profit levels from the income statement.

Overall, the launch of the JPX Prime 150 Index marks a significant step towards strengthening corporate governance in Japan's equity markets, providing investors with a clearer understanding of the value within the market and promoting sustainable growth in the world's third-largest economy.

How the JPX Prime 150 Index May Impact New Businesses

Promoting Transparency and Fairness

The launch of the JPX Prime 150 Index in Japan represents a strong push towards improving corporate governance and transparency in the country's equity markets. For new businesses entering the market, this move can have significant implications. The emphasis on enhancing corporate value and evaluating profitability based on the balance sheet encourages companies to focus on long-term sustainable growth. This shift promotes a more stable and fair business environment, benefiting both existing corporations and new ventures alike.

Access to Investment Opportunities

With the expected availability of index-based products like index futures and exchange-traded funds based on the JPX Prime 150 Index, new businesses will have access to broader investment opportunities. Investors looking to support companies with strong corporate governance practices and sustainable growth strategies will find these businesses more attractive, increasing the pool of potential investors for new ventures. This can be a game-changer for startups and smaller companies seeking capital infusion to fuel their growth.

Market Performance and Optimism

The positive performance of the Japanese stock market, driven by investor optimism surrounding corporate governance reforms, presents a promising landscape for new businesses. The high returns seen in benchmark indices like the Nikkei 225 and Topix indicate a favorable environment for investment and growth. Entrepreneurs and startups can leverage this positive sentiment to attract funding and gain traction in a market that is increasingly recognizing the value of strong governance practices.

In conclusion, the introduction of the JPX Prime 150 Index brings forth a more transparent and fair corporate governance environment in Japan's equity markets. For new businesses, this means increased access to investment opportunities and a supportive market landscape. By adhering to the principles of the index and prioritizing corporate governance, new ventures can position themselves favorably, attracting capital, building trust, and driving sustainable growth in the dynamic Japanese market.

Article First Published at: https://www.cnbc.com/2023/07/03/japan-launches-prime-150-stocks-benchmark-to-help-investors-identify-value.html

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