Japan Exchange Group Inc. will unveil the biggest-ever reshuffle of the Topix index on Wednesday, aiming to shrink one of Asia's broadest equity benchmarks. The changes are the second stage of a multiyear effort to make the index more investable by removing about 680 companies under tougher inclusion rules. Around 35 stocks, including Mc Donald's Holdings Co. Japan and Ferrotec Corp, are expected to be added.
With approximately ¥166 trillion ($1.1 trillion) in passive assets tracking the index, the overhaul carries significant implications for global investors. The first phase, completed in January 2025, reduced members to about 1,700 from roughly 2,200. After this latest change, the tally could fall further to just under 1,000 in two years.
Reducing constituents should make it easier for investors to run passive strategies while encouraging competition among companies to secure a place in the benchmark. Hiromi Ishihara, head of equity investment at Amundi Japan Ltd, noted that companies often step up shareholder returns to avoid removal, which can lift share prices. She stated there are opportunities in determining whether actions aimed at staying in the index lead to genuine increases in corporate value through stronger governance.
Under the new rules, additions and deletions will be determined using criteria including annual traded-value turnover and market capitalization of shares available to public investors. Stocks selected for removal will have their weightings reduced quarterly through July 2028. Companies that meet requirements when reassessed in October 2027 can halt that process.
From October 2028, the benchmark will be rebalanced annually. Analyst Shota Sando at Tokai Tokyo Intelligence Lab warned the trend toward large-cap stocks will likely strengthen, as investors remain mindful of the risk that small-cap stocks could be removed from Topix going forward.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing