TSE Cash Markets

In the domestic stock market, trading has been active with a focus on changes in corporate management. In contrast to the Nikkei 225, which is sagging after hitting a high at the beginning of July, companies with double-digit share price gains, such as Kobe Steel and Sanrio, also stand out. With the increased focus on Japanese equities in the wake of market restructuring, there is a clear trend toward selective “shareholder-oriented” responses, such as return on equity (ROE) improvement and increased shareholder returns.

The Nikkei Stock Average rose in August, the last week of the month in which March-quarter companies finished their fiscal year, but fell 2% for the month. It is 3% lower than its most recent high on July 3 (33,753 yen). FOREIGN INVESTORS, who have been buying up Japanese equities since April, are notably having weeks in net short positions, especially in futures. The rising trend in global interest rates is also a burden, and the overall market is still sluggish.

However, this does not mean that the hands of Japanese stock buyers have been cut off. Of the 1,200 companies listed on the TSE Prime Market with fiscal years ending in March, 70% of them exceeded the Nikkei Stock Average’s percentage change (down 1.7% from the end of June). This is up from a little under 30% in the April-June period and is spreading to individual stocks. “During the upswing until June, large-cap stocks were the focus of buying, but now funds are going into individual stocks, such as shipping, based on the results of the April-June period”(Daiwa Securities, Chief Strategist).

The most notable increases are companies that are strengthening their “shareholder-oriented” management. Kobe Steel has strengthened its efforts to raise prices for major customers, which had lagged behind the same industries, and to underpin unprofitable businesses. The ROE for the fiscal year ending March 2024 is expected to be 13%, much higher than 5% five years ago. The current share price is about 40% higher than at the end of June and will remain 16% higher after the closing.

Sanrio’s 23% higher than at the end of June is not only due to the recovery in inbound tourists (foreigners visiting Japan). This is because the company’s ROE will increase to 20% this fiscal year (7% five years ago) as it grows its profitable licensing business overseas. “After the change of presidents in 2020, there has been a heightened awareness of the need to leverage intellectual property (IP), such as characters, to make money” (a major domestic operator). Isetan Mitsukoshi Holdings expects to achieve its highest operating profit this fiscal year by strengthening sales promotions focused on affluent customers.

Companies that increase shareholder returns, such as “dividend increases despite profit declines,” continue to be highly valued. Nippon Yusen expects a significant decline in profit as the benefits of the market surge fade, but has decided to raise its dividend plan and repurchase shares. The stock price hit the year’s high on 9th.

Money is also heading to food and restaurants, where there are high expectations for upward revisions to this year’s earnings. Megmilk Snow Brand has already achieved nearly 40% of its full-year net income forecast for the April-June period, while Toridoll Holdings, which handles Marugame Seimen and others, is almost 100%. Both share prices are more than 20% higher than at the end of June, as sales have been strong even as price increases for higher materials prices have been absorbed.

On the other hand, despite the highest net income in the April-June 2023 period, the stock prices of Toyota Motor and Komatsu have been growing at a slower rate, up 9% and 7%, respectively, than at the end of June. The earnings benefits of a stronger dollar and weaker yen and the resumption of production have been factored in to some extent, and uncertainty about the Chinese economy also has a negative impression.

Shin-Etsu Chemical was down 2% due to the deteriorating vinyl chloride market in the US, which had been strong, while Murata Manufacturing was down 1%, hit hard by slowing smartphone demand and other factors.

Although TSE Prime companies expect total net income for the fiscal year ending March 2024 to be the highest for the third consecutive year, uncertain factors remain, including the overseas economy, especially in China, and trends in interest rates and exchange rates. Since the atmosphere of a selective market in which companies are carefully evaluating their performance is expected to intensify, the weight of shareholder-oriented measures will increase even more.