Executive Director, Metrical Inc

Aki Matsumoto

Executive Director

Independent Leading Corporate Governance Research

Metrical Inc

METRICAL INC. is an independent leading Corporate Governance research firm in Japan where Corporate Governance is increasingly recognized as an important element on corporate management in these days. Thus, CG research and solutions would become an essential component of global capital markets and play important to contribute to transparency of the markets and maximize shareholders’ value in Japan. 

METRICAL INC. provides Corporate Governance research and analysis including rating services, and  also offers investment research and IR services with solutions and customized profound research on CG and IR issues.

<ul>
<li>There seems to be consensus on the end of the transitional measures in 3 years. Even if this issue is finally settled, the issue of prime market quality will remain.</li>
<li>There’s no better solution to raise stock price than for companies to develop their own strategies and expand corporate value. TSE should promote metabolism and improve quality of the market.</li>
<li>If the quality of corporate governance is an issue, it is necessary to encourage change in boards that are dominated by male internal executive directors and lack diversity.</li>
</ul>


There seems to be consensus on the end of the transitional measures in 3 years. Even if this issue is finally settled, the issue of prime market quality will remain.
There’s no better solution to raise stock price than for companies to develop their own strategies and expand corporate value. TSE should promote metabolism and improve quality of the market.
If the quality of corporate governance is an issue, it is necessary to encourage change in boards that are dominated by male internal executive directors and lack diversity.


Quality Issues Are a Common Challenge for TSE Market Restructuring and Corporate Governance Reform

Index Rebal Trades & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Index Rebal Trades & Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

<ul>
<li>Quiddity's "Who is Ready" series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.</li>
<li>This insight is a follow-up to <a href="https://www.smartkarma.com/insights/topix-inclusions-who-is-ready-jan-2023" target="_blank" data-smartkarma-citation="insights:86980" rel="noopener">TOPIX Inclusions: Who Is Ready (Jan 2023)</a> </li>
<li>Our top pick from the last insight <a href="https://www.smartkarma.com/entities/celsys-inc" target="_blank" data-smartkarma-citation="entities:20774:1" rel="noopener">CELSYS (3663 JP)</a> (previously known as Artspark) has gained ~14% in roughly a month.</li>
</ul>


Quiddity's "Who is Ready" series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.
This insight is a follow-up to TOPIX Inclusions: Who Is Ready (Jan 2023) 
Our top pick from the last insight CELSYS (3663 JP) (previously known as Artspark) has gained ~14% in roughly a month.


TOPIX Inclusions: Who Is Ready (Feb 2023)

<ul>
<li>11 of 14 corporate governance criteria confirmed the significance of % foreign shareholder. In particular, 9 of 14 criteria showed progress in their efforts due to engagement of overseas investors.</li>
<li>Overseas investors are concerned about whether the interests of minority shareholders can be secured in companies with large shareholders, such as listed subsidiaries, and whether governance will function properly.</li>
<li>As for the independence of the Nominating and Compensation Committee, which didn't show significant correlation with % of foreign shareholders, it's still beyond the power of engagement by overseas investors.</li>
</ul>


11 of 14 corporate governance criteria confirmed the significance of % foreign shareholder. In particular, 9 of 14 criteria showed progress in their efforts due to engagement of overseas investors.
Overseas investors are concerned about whether the interests of minority shareholders can be secured in companies with large shareholders, such as listed subsidiaries, and whether governance will function properly.
As for the independence of the Nominating and Compensation Committee, which didn't show significant correlation with % of foreign shareholders, it's still beyond the power of engagement by overseas investors.


Overseas Investors Have Done a Great Deal to Improve the Governance of Japanese Companies, But...

<ul>
<li>Fujikura and JVC Kenwood, which could generate cash flow by restructuring their business portfolios, were evaluated as "value stocks" due to the gap between their corporate value and stock prices.</li>
<li>Fujikura and JVC Kenwood haven't posted record profits in 17 and 11 years, respectively. The key to solving why it took so long may be the change in top management.</li>
<li>If management doesn't listen, structural reforms won't be implemented, even if shareholders repeatedly suggest restructuring business portfolio. This is why it's important for shareholders to replace management that continues underperforming.</li>
</ul>


Fujikura and JVC Kenwood, which could generate cash flow by restructuring their business portfolios, were evaluated as "value stocks" due to the gap between their corporate value and stock prices.
Fujikura and JVC Kenwood haven't posted record profits in 17 and 11 years, respectively. The key to solving why it took so long may be the change in top management.
If management doesn't listen, structural reforms won't be implemented, even if shareholders repeatedly suggest restructuring business portfolio. This is why it's important for shareholders to replace management that continues underperforming.


Could the Turnaround Be Due to a Change in Management?

<ul>
<li>The Tokyo Stock Exchange (TSE) calculates Free-Float Weight (FFW) for each listed company and uses this value as a key component of TOPIX Index Calculation. </li>
<li>For companies with "low liquidity" the FFW will be multiplied by a fixed liquidity factor of 0.75 to derive the final FFW used for index calculation. </li>
<li>Every April, the application of this liquidity factor is reviewed by the TSE. In this insight, we take an early look at what could happen in April 2023.</li>
</ul>


The Tokyo Stock Exchange (TSE) calculates Free-Float Weight (FFW) for each listed company and uses this value as a key component of TOPIX Index Calculation. 
For companies with "low liquidity" the FFW will be multiplied by a fixed liquidity factor of 0.75 to derive the final FFW used for index calculation. 
Every April, the application of this liquidity factor is reviewed by the TSE. In this insight, we take an early look at what could happen in April 2023.


TOPIX Index Upweights: An Early Preview Of "The Big April Basket" 2023

Japan

The TOPIX, also known as the Tokyo Stock Price Index, is a capitalization-weighted index of all companies listed on the First Section of the Tokyo Stock Exchange. The index is supplemented by the subindices of the 33 industry sectors. The index calculation excludes temporary issues and preferred stocks, and has a base value of 100 as of January 4, 1968.

TSE Tokyo Price Index TOPIX (TPX INDEX)

Quality Issues Are a Common Challenge for TSE Market Restructuring and Corporate Governance Reform

I would like to discuss the issues on the materials of the 6th Follow-up Meeting on the Revision of Market Segmentation disclosed by the TSE on...

Metrical Inc

TOPIX Inclusions: Who Is Ready (Feb 2023)

The ArtSpark (CELYSYS) pre-event situation, the Axxzia TOPIX Inclusion, and our early preview of the Big April Basket 2023 are currently the most...

Janaghan Jeyakumar, CFA

Overseas Investors Have Done a Great Deal to Improve the Governance of Japanese Companies, But...

By conducting a multiple regression analysis, I would like to explore which corporate governance practices tend to improve as the foreign...

Metrical Inc

Could the Turnaround Be Due to a Change in Management?

I would like to discuss the January 6 Nikkei article titled "Look for 'Reborn Stocks': All-time High Due to Changes, Undervalued, and Resilient to...

Metrical Inc

TOPIX Index Upweights: An Early Preview Of "The Big April Basket" 2023

Daiei Kankyo, Socionext, Sun* , Mercari, Loadstar Capital, Bewith, Medley, and Appier Group are our high-conviction names that could see their...

Janaghan Jeyakumar, CFA