Japanese stocks rise. What’s behind the boom.

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Japanese equities hit their highest levels in 31 years on Tuesday. Of course, world markets are in a good mood as investors remain strong about the continued economic recovery. But the world economy also serves Japan well.

The

Nikkei 225

rose 714 points, or 2.7%, on Tuesday. The index peaked at 27,568 and briefly reached 27,601, the highest level the index has reached since 1989.

Other world stocks appeared Tuesday, but less. The

Asia Dow

index closed at 1.6%, the

Hang Seng

The index rose by 1%, and the

Stoxx Europa 600

index rose almost 1%. The US stock market has been on the move for the past few sessions, but briefly with the

Dow Jones Industrial Average

with about 100 points in the afternoon trade. While Covid-19 cases continue to increase worldwide, fiscal stimulus measures support consumers and businesses, and several biotechnologies are on the road to mass distribution of vaccines.

But some recent developments stand out for the Japanese economy and markets. The companies on the Nikkei are exposed to the right geographical areas and sectors to take advantage of the developments.

Fiscal stimulus in key areas around the world kicks in gear. The US has adopted a $ 900 billion fiscal stimulus bill that will help individuals and small businesses. South Korean President Moon Jae-in has confirmed that a third round of direct payments worth 9.3 billion won, or about $ 8.5 billion, would go out to individuals and small businesses in January. Companies on the Nikkei 225 see on average about 13% of their revenue from the US and 2.8% from South Korea.

It is more exposed than other indices around the world. Companies on the Hang Seng Index see 3% of revenue from the US and almost nothing from South Korea. Stoxx 600 businesses see nearly 20% of U.S. revenue, but only about 8% of the index is in consumer cycles, which is beneficial as the economy recovers and consumers return to the pre-pandemic – or higher – of spending. Exposure is another key for the Nikkei: about 18% of the Nikkei 225 businesses are cyclical consumers.

What’s more, Japan is an export – oriented country that wants its currency to be relatively weak in order to make its exports globally competitive. However, the yen strengthened against the dollar and the renminbi, both of which are used to buy Japanese exports. However, the currency windfall for Japan is weighing heavier than the global economic environment, says Quincy Krosby, chief market strategist at Prudential Financial. Barron’s.

The recent strength of Japan has attracted significant investors. Warren Buffett made a surprise bet for one in September.

Jim Rogers, an investor in Singapore who co-founded the legendary Quantum Fund with George Soros, cited Japan’s monetary policy as a major force in the country’s bull market – a view he reiterated on Tuesday. “The head of the Bank of Japan goes to work early every morning like a good Japanese bureaucrat and pushes money (‘unlimited’ is his word) as fast as he can. He will then buy stocks, bonds and ETFs as fast as he can, ‘Rogers wrote in an email. He said he owns Japan ETFs.

Rogers says it helps that Japan has a new government, led by Prime Minister Yoshihide Suga. ‘New governments are always doing things to make people happy. This one is no different. ”

Write to Jacob Sonenshine by [email protected]