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TOKYO: Stock markets have been flooded with investment funds due to global monetary easing since the Covid-19 pandemic began, but the share prices for Japanese companies have been slow to recover.
Japanese stocks are increasingly being excluded from global stock indices, and if this trend continues, it could affect the companies’ fundraising.
Japanese firms are being tested as to whether they can increase their investments aimed at growth, which are said to be smaller than those of overseas companies, and attract more money to achieve further growth.
In November, Morgan Stanley Capital International, Inc (MSCI), a US leading financial services provider, reviewed selected issues on its stock index, which is used by investors around the world as guide for fund management.
Fifteen Japanese companies were removed from the index, among them well-known companies like Yamada Holdings Co, Casio Computer Co and NH Foods Ltd.
Benefit One Inc and Open House Co were the only Japanese companies newly selected.
The MSCI index is calculated using stocks chosen from about 70 countries, and the issues are reshuffled twice a year.
The exclusion of Japanese firms means that “overseas money is flowing out of Japan,” according to an official of a major securities firm.
This is because the world’s brokerages sell investment trusts linked to the MSCI index with assets totalling US$16 trillion (about 1,800 trillion yen or RM67.51 trillion).
According to an estimate by Daiwa Securities Co, MSCI index-linked investment trusts sold about 220 billion yen (RM8.16bil) worth of the 15 firms’ stock at the end of November because of the shuffle.
It was the third consecutive time since November last year that more than 10 Japanese companies were excluded from the MSCI index, and the most since 20 firms were removed in May 2011, immediately after the great East Japan earthquake.
The removals were spurred by the slump in stock prices caused by the slow recovery of Japanese firms’ business performance.
Stocks on the MSCI index are said to be chosen based on their market capitalisation, among other factors.
Global stock markets, especially US markets, increase their market capitalisation through stock rallies after monetary easing around the world causes cash to flow into the country.
The Nikkei 225 pales when compared with these global stock markets. While it was up 70% at the end of November, compared with the lows in March 2020 when stock prices were most sluggish amid the pandemic, the 30-stock Dow Jones industrial average was up 90%.US stocks, as represented by Google LLC, Amazon.com, Inc, Facebook Inc (now Meta Platforms, Inc) and Apple Inc – dubbed GAFA – grew through aggressive investments in digitisation and other areas, and investors raced to buy their stocks.