Japan’s stock market has continued to rise since the end of 2023. The Nikkei stock average is back at record levels for the first time in 34 years, and has the momentum to exceed the record-high prices reached during the “bubble economy” (1980s to 1991). One factor contributing to this trend is the increase in capital inflow from foreign investors, whose attention on the market followed a series of reforms at the Tokyo Stock Exchange. Considering these factors, a new Exchange Traded Fund called “iFreeETF JPX Prime150” (code: 2017), managed by Daiwa Asset Management Co. Ltd., was launched on the TSE market on January 24, 2024.
iFreeETF JPX Prime150 is the first ETF linked to the JPX Prime 150 Index. The ETF trust fee is set at 0.176% (including tax), which is about half of the average fee of TSE-listed ETFs.
See details here: https://www.daiwa-am.co.jp/english/information/20240213_01.pdf
JPX Market Innovation & Research, Inc. (JPXI), part of Japan Exchange Group, started calculating the JPX Prime 150 Index from July 3, 2023, and it is composed of 150 stocks that have been selected to represent Japanese companies with the “potential to create value" amongst the top-ranked stocks listed on the TSE Prime Market.
In March 2023, Tokyo Stock Exchange, an affiliate exchange under JPX, requested an “Action to Implement Management that is Conscious of Cost of Capital and Stock Price” to TSE-listed companies in order to achieve sustainable growth and increase corporate value over the mid to long-term. Aiming to enhance the TSE stock market, JPX also requested listed companies to have their board of directors discuss and develop policies, targets, planning periods, and specific initiatives for improvements, as well as to disclose to investors clear information on these objectives along with an assessment of the current situation. In January 2024, TSE published a list of companies that have disclosed information regarding their actions.
In response to this situation, JPXI developed a new stock index taking note of market capitalization based on the following two measures of value creation: 1) "return on capital"; and 2) "market valuation".
Regarding these two measures, "return on capital" refers to the equity spread, which is the difference between ROE (Return on Equity) and the cost of equity, whereas "market valuation" refers to the PBR (Price Book-value Ratio), which is the stock price divided by BPS (Book Value per Share), as an indicator. An annual review of the 150 constituents of the index will be conducted on the last business day of August. The Index is designed to give more visibility to the leading Japanese companies that are considered to create value, and to attract investment by institutional and individual investors from both within and outside of Japan, thereby facilitating the further development of value-creation management, and enhancing the attractiveness of the Japanese stock market.
JPX Prime 150 Index has three major characteristics:
1）Composed of “companies of similar quality to S&P 500”
2) Centered on leading Japanese companies with market capitalization of over JPY 1 trillion, covering about 50% of the Japanese market with 150 stocks
3) Characteristics and performance that are different than TOPIX (large size, high growth potential)
Immediately after commencement of index calculation, the new Index has been underperforming when compared to TOPIX, but the gap has been recently narrowing. The Index has growth characteristics, and the underperformance so far is considered to be mainly due to US interest rate increases in 2023, which have negatively impacted growth stocks, as well as the improvement of value stocks with low PBR following TSE’s request.
JPX Prime 150 vs TOPIX
※Base date = June 30, 2023, Base point = 1,000
※Both indexes are calculated using Total Return Values
At the listing ceremony, Mr. Mikita Komatsu, President of Daiwa Asset Management, stated that this ETF is “a product to invest in Japan’s growth potential and will attract attention from foreign investors as well. We expect that its long-time performance will exceed that of TOPIX.”
Since the ETF launched on January 24 it has been actively traded, with an average daily trading volume amounting to JPY 900 million for a net worth of JPY 10.7 billion.
Futures products on the Index are scheduled to be listed on March 18, 2024, on the Osaka Exchange, which will enable a conducive environment for institutional and foreign investors to invest.
In Japan, the new Nippon Individual Saving Account (NISA) has been launched and is helping to highlight the importance of building assets. The Index is expected to be utilized as a new option for investing in the Japanese markets.
See details of JPX Prime 150 Index