Tokyo exchange courts Asian startups for IPOs

Japan's stock market is one of the world’s best performers so far this year, driven by the return of modest inflation and a weaker yen.
Japan's stock market is one of the world’s best performers so far this year, driven by the return of modest inflation and a weaker yen.

Summary

The Tokyo Stock Exchange aims to attract listings from Asian startups, leveraging the market’s recent gains and positioning itself as a preferred fundraising destination for companies outside Japan.

The Tokyo Stock Exchange aims to attract listings from Asian startups, leveraging the market’s recent ascent to record highs and positioning itself as a preferred fundraising destination for companies outside Japan.

Under a new initiative, the exchange is working with banks and other partners to select a few startups from other parts of Asia this summer to help them grow their business for potential initial public offerings down the road, said Hiromi Yamaji, group chief executive of Japan Exchange Group, the parent company of the Tokyo exchange.

“We want them to use the Japanese market as a springboard to become a global company," Yamaji said in a recent interview.

The country’s stock market is one of the world’s best performers so far this year, driven by the return of modest inflation and a weaker yen, which boosts the value of corporate profits earned overseas in yen terms. The benchmark Nikkei Stock Average hit a record for the first time in 34 years in February and renewed record highs in the subsequent weeks. Some investors attribute the ascent to the Tokyo Stock Exchange’s initiative from last year, which called on listed companies to improve returns on shareholders’ capital and correct discounts reflected in their share prices. As a result, many companies have increased their dividends and share buybacks.

The exchange’s renewed push also comes at an opportune time. Its peer in Hong Kong is facing a slowdown in IPOs, partly due to signs of weakness in the Chinese economy.

Hong Kong is one of the biggest financial centers in Asia and home to some of the largest listed companies in the region, such as tech titans Alibaba Group Holding and Tencent Holdings. However, the number of new listings and the amount of funds raised have declined significantly in recent years. In 2023, the IPO volume in Hong Kong dropped 32% to $5.75 billion, its third consecutive year of decline, according to data from Dealogic.

Despite those challenges, the Hong Kong exchange has fared relatively well. In 2023, Japan was ranked fourth in Asia in terms of the dollar value of funds raised through IPOs, behind China, India and Hong Kong, according to Dealogic data. Japan was last on the top list for the region in 2004.

While Japan’s stock exchange doesn’t have as diverse a range of listed foreign companies as Hong Kong, the Tokyo Stock Exchange has managed to host some.

Malaysian conglomerate YTL, which runs a Niseko-area resort in the northern Japanese island of Hokkaido, and Sequoia Capital-backed artificial intelligence-driven marketing company Appier Group, originally from Taiwan, are listed in Japan.

“We are trying to create a bigger trend," Yamaji said, adding that about 20 companies from Asia, excluding Japan, are in the pipeline for potential IPOs in Tokyo.

However, challenges remain, particularly for companies that think the market is difficult to penetrate.

Sreejita Deb, founder and chief executive of Singapore-based beauty-product distributor Raena, is considering an IPO in a few years, with Japan and Singapore being the top potential listing destinations currently.

Saying Japan is opaque for an outsider to navigate, she wants the exchange’s help in presenting her company, especially to retail investors, and finding Japanese brands with which her company can work.

“Because there is a language barrier, if they [the Tokyo Stock Exchange] could work harder to break down some of the information asymmetries, that would be great," she said.

Write to Kosaku Narioka at kosaku.narioka@wsj.com

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