Japan launches new index of well run, high-return small companies
13/03/2017 11:48
By Ayai Tomisawa and Yoshiyuki Osada
TOKYO, March 13 (Reuters) - The Tokyo Stock Exchange
launched a new stock index on Monday, selecting 200 companies
among small-to-mid-cap firms with high return on equity and
operating profits as well as strong corporate governance.
JPX-Nikkei Mid- and Small-Cap Index .JPXNKMSC is modelled
on a similar index for larger shares with high profitability,
the JPX-Nikkei Index 400, which debuted three years ago to help
put pressure on company management to boost profitability.
"The launch of this index is expected to continue to
encourage Japan corporations to emphasize actions that are
valued by equity shareholders," Kabir Goyal, associate portfolio
manager at Wasatch Advisors in Salt Lake City, said.
The launch comes as Japanese small-cap shares outperform
their larger peers. Investors have recently avoided large-cap
shares, which are highly sensitive to the yen and by extension
susceptible to any irregular comments or tweets from U.S.
President Donald Trump.
Nikkei Jasdaq index .NOTC , Japan's largest market for
start-ups, had a 21-day winning day streak until Friday, the
longest since early 2004.
So far this year, it has gained 11 percent, while the index
of another start-up market, Mothers .MTHR , has jumped 14
percent.
The Tokyo Stock Exchange's Second Section .TSI2 , mostly
composed of mid- and small-cap shares, has surged 12 percent,
compared to 2.7 percent gains in the Nikkei .N225 and a 3.9
percent increase in the Topix .TOPIX , which covers all shares
on the TSE's main board.
"Japan small caps are fertile ground for stock pickers and
an area where we've been able to generate significant alpha for
our portfolios," said Goyal of Wasatch Advisors.
While Goyal invests also in the TSE's main board, he also
has shares in En-Japan Inc 4849.T , a net-based employment
agency that is included in the new index, and other Jasdaq
shares.
According to the exchange, an average ROE in the past three
years of the 200 firms included in the new index stood at 18.2
percent, much higher than 12.5 percent for the JPX-Nikkei 400
and 8.2 percent for the Topix .TOPX .
But some fund managers also say trading volume for small
caps has been subdued lately despite their rally, suggesting
limited investor interest.
"Japanese small caps tend to follow large-cap stocks' moves,
so they rise after large caps rise but they fall fast when there
is a macro event," said Ryosuke Matsui, portfolio manager at FIL
Investments in Japan.
"Small caps are like flowers blooming for a very short
period of time."
(Editing by Nick Macfie)
((hideyuki.sano@thomsonreuters.com; +81 3 6441 1827; Reuters
Messaging: hideyuki.sano.thomsonreuters.com@reuters.net))
Keywords: JAPAN STOCKS/SMALLCAPS