Photographer: Noriko Hayashi / Bloomberg
Photographer: Noriko Hayashi / Bloomberg
The Japanese Nikkei 225 shares rose above 30,000 yen for the first time since August 1990, as it reversed its charge through levels not seen since the bubble economy crashed.
The benchmark rose 1.9% to Monday at 30,084.15 amid signs that an economic recovery at home is intact and hopes for progress in U.S. stimulus talks. While equities have reached new heights worldwide in recent months, the Nikkei 225 still needs to reach nearly 30% to surpass its record of 38,915.87. This was achieved in the final trading session of 1989, before the index lost more than half of its value in three years after the economic bubble burst.
Japanese stocks recovered after reaching a low point in 2012 following the earthquake disaster in the previous year. Former Prime Minister Shinzo Abe’s efforts to revive the economy and increase corporate value through better governance since its adoption in 2012 have supported share price increases ahead of this year’s march.
The brief breach of the 30,000 shows that ‘all sorts of investors are stepping in to buy Japanese stocks with a totally positive view’, said Shoji Hirakawa, global chief strategist at Tokai Tokyo Research Institute Co.
This view was confirmed on Monday when Japan announced the gross domestic product grew an annualized 12.7% from the previous quarter in December in the three months to December, as exports continued to recover and the government’s stimulus boosted consumption spending despite the coronavirus.
Continued economic growth is one factor contributing to the strength of Japanese equities, according to John Vail, global chief strategist at Nikko Asset Management Co., who praised the good export and private capital data. Japan’s reasonable valuations compared to those during the bubble period, as well as improved shareholder returns and returns, are also strong points.
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“There are always doubters who are constantly pointing to demographics,” Vail said, “but that has not stopped the tremendous growth in corporate earnings, including that of Japan’s expanded global manufacturing base.”
Foreign buyers
Foreign investors converted net buyers’ cash and futures for the first time in four weeks and, according to Japan Exchange Group data, bought about 856 billion yen ($ 8.2 billion) during the week ending February 5. Foreigners, who dropped more than $ 59 billion worth of local shares last year, are expected to become net buyers in 2021 as economic recovery increases globally, making export-dependent Japan attractive.
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“We are in a global risk environment, but the particular strength of Japanese equities speaks to the appetite for equities that are sensitive to business cycles and value equities,” said Shogo Maekawa, a strategist at JPMorgan Asset Management in Tokyo. “Foreigners re-evaluate Japanese stocks.”
Daiwa Securities Group Inc. CEO Seiji Nakata called the breach of the 30,000 a “symbolic” event indicating that the Japanese economy is back on track. The Nikkei 225 is likely to reach the 33,000 mark next, he said in an email statement.
Like the Dow Jones industrial average, the Nikkei 225 is a price-weighted benchmark. The two stocks with the highest weight, the Uniqlo operator Fast Retailing Co. and SoftBank Group Corp., forms almost 19% of the benchmark and thus has an extraordinary impact on its movements. Both of these shares have risen over the past year, benefiting from the pandemic, and the latter from Masayoshi Son’s record buyback.
The price-weighted nature of the index has been criticized over the years for not accurately reflecting the state of the Japanese stock market. This is also noteworthy due to the lack of some of the largest stocks in Japan, including Nintendo game giant Nintendo Co and key automation specialist Keyence Corp.
Takeo Kamai, head of execution services at CLSA Securities Japan Co., said whether the Nikkei 225 will make a convincing break from the 30,000 mark will depend on the performance of US stocks in the coming days, as the local market is a catalyst has. “The move feels very forward-looking,” he said.
The S&P 500 ended at all times last week high before a three-day weekend, adding more than 1% for the week. Yet Japanese stocks have outperformed their US counterparts so far this year, with the Nikkei 225 rising 9.6%, doubling profits in the S&P 500.
– With the help of Toshiro Hasegawa and Shoko Oda
(Updates with the latest share price are constantly moving)