The number of foreign companies listed in Tokyo is an illuminating index of the city’s status as an international financial centre.
For years, that indicator has been flashing red. Now the group is down to just four, and threatens to vanish completely.
The latest to leave was US insurer Aflac last month — a departure that has cut the share of foreign listings in Tokyo down to just 0.1 per cent of the total 3,687 companies.
Contrast the early 1990s, when the catalogue of foreign listings was at its fattest at 125, or about 7 per cent of all companies listed in Japan at the time. The country’s era-defining property and stock market bubbles had yet to burst, and companies were drawn in by a sense that the Asian economic powerhouse was unstoppable.
At the peak, the Tokyo Stock Exchange offered secondary listings of heavyweight global names including British Gas, Disney and Exxon, all hoping to deepen their presence in the world’s second-biggest economy and benefit from its vast pool of capital.
Now, the remaining handful still on the city’s main exchange is a much more obscure bunch: YTL, a Malaysian conglomerate; MediciNova, a US pharma start-up; Techpoint, a small producer of imaging chips; and Beat Holdings, a Chinese financial information provider, registered in the Cayman Islands.
The shrinking foreign presence on Tokyo’s market reflects Japan’s declining relevance as a financial hub and the long-frayed patience of those who have waited in vain for a surge of domestic savings into the nation’s stocks.
Masatoshi Kikuchi, a strategist at Mizuho Securities, said the bursting of the economic bubble left Japanese people “risk averse” and cautious about trading foreign equities. “Then trading volume declined and foreign companies chose to be delisted to cut listing fees,” he added.
For foreign companies, the cost of being listed — and providing Japanese translations of all manner of documents and accounts — is relatively high. Maintaining a listing in Japan also provides a negligible advantage in doing business in the country.
When Aflac announced its departure from the TSE in August, it noted that it had listed in 1987 in an effort to raise its profile in Japan: a then exponentially growing market it was eager to penetrate.
Analysts say that judgment was likely correct at the time: the status of listed companies in the minds of most Japanese was higher than that of their non-listed counterparts. But no longer. Aflac departed with an assurance that “the TSE delisting is not expected to have any impact on Aflac’s business in Japan”.
Aflac’s official reason for taking its shares off the market was that the traded volume of its TSE-quoted shares had fallen to extremely low levels. It is the complaint most often cited by the foreign companies that have delisted since the 1990 heyday.
That decline in volumes is the result of fundamental changes in the way that Japanese invest. Three decades ago, foreign companies chose to list in Tokyo because domestic retail investors could not buy foreign stocks on foreign exchanges. Now, the biggest online Japanese brokerages give instant, uncomplicated access to shares on most major global bourses.
Tokyo’s fading importance as a financial centre is a perennial sore, and one that successive TSE heads and Tokyo governors have failed to address. A new push came last month, when a delegation that included Hiroshi Nakaso, the former deputy governor of the Bank of Japan and Yasumasa Tahara, a director at the Financial Services Agency, travelled to New York.
Their pitch to a group of about 20 representatives of the world’s largest global asset management firms included an account of recent progress on corporate governance and the claim that the Tokyo market “will become a gateway to global investors for the [small and medium-sized enterprises] and start-ups in the Asia-Pacific region”.
The questions they faced, say people who attended, related in large part to the Japanese government’s plans to tighten controls on foreign investment. Analysts say that could reduce the influence of activist investors from overseas.
Underlying the “FinCity.Tokyo” pitch, though, was a logical leap that many have made before. There are $16.8tn of Japanese household assets, about half of which are currently allocated to bank deposits. The country’s changing demographics mean that by 2040, 35 per cent of Japanese will be aged over 65.
At some point, says Jesper Koll, Japan head of fund management group WisdomTree, the big shift from bank deposits to domestic equities will come. Institutions are beginning to point the way: some took heart in last month’s announcement by Fukoku, an insurer, that it would triple its exposure to Japnese stocks. For now, though, it looks to be the exception.
The disappearance of foreign listed companies reflects another major change that has redefined the Japanese stock market since 1990. Foreign ownership accounted for 4 per cent of Japan equities three decades ago; now it is 30 per cent.
But it is clear that investors do not come to Japan in pursuit of non-Japanese stocks. Aflac and the other departees seem to have got that message.