Japan activist group hails bourse reform as remedy for undervalued stocks

TOKYO: A group of investors led by prominent activist shareholder Yoshiaki Murakami said a push by the Tokyo bourse for better capital efficiency will strengthen their crusade to reduce Japan’s unusually high number of chronically undervalued stocks.

Japan is almost unique among major economies in the number of companies whose shares are worth less than their assets - almost half of those listed on the TOPIX500 index of big companies, compared with about 3% for the S&P 500 in the US To address the matter, the Tokyo Stock Exchange made a rare call a month ago for firms to disclose plans to improve capital efficiency, especially if their shares are trading below book value, triggering a wave of share buy-backs and dividend hikes.

The move is a testament that firms can no longer brush aside stock underperformance and must end the decades-long practice of asset-hoarding, said Hironao Fukushima, representative director of City Index Eleventh, who works closely with Murakami.

“It gives us a tailwind,” Fukushima told Reuters in an interview, referring to value investors’ goal of boosting a company’s price-to-book ratio (PBR) or return on equity. “Previously, management at listed companies didn’t have any incentives to increase PBRs,” he said.