Reform of the Tokyo Stock Exchange's TOPIX is getting fully under way this month. The index is expected to narrow its constituents from approximately 1,600 companies to around 1,000 under new criteria based on free-float market capitalization and trading performance. The first reshuffle will be carried out in stages over approximately 2 years, followed by annual reviews.
The Tokyo Stock Exchange is launching its TOPIX reform this month and introducing new criteria that limit eligible stocks to those ranking within the top 97% based on free-float market capitalization and annual trading performance. TOPIX currently generally includes listed stocks on the Prime Market, but the new criteria will be applied from the end of this month.
The aim is to make the index more attractive and stimulate the market by narrowing its constituents. Inclusion in or exclusion from TOPIX is directly linked to the asset sizes of investment trusts and other funds. Inclusion can bring continuous buying of a company's shares, while exclusion can also become a factor behind a decline in its share price.
Companies are expected to enhance their corporate value over the medium to long term through investment in growth areas. They are being called on to view this reform as an opportunity to reconsider their growth strategies and to reframe listing as a means of raising capital and strengthening credibility.
The new criteria were announced on the 7th of this month, and application will begin with trading on the 30th. The number of constituents is expected to fall below 1,000 from approximately 1,600 at present. The first reshuffle is scheduled to proceed in stages over approximately 2 years, followed by annual reviews.
Japanese companies' earnings are solid, but their presence in global markets remains insufficient. To regain competitiveness, they need to create products and services capable of competing globally through growth investment.