Photographer: Noriko Hayashi / Bloomberg
Photographer: Noriko Hayashi / Bloomberg
The Japanese average of Nikkei 225 shares exceeded 30,000 yen for the first time since August 1990, as it continued to charge back to unprecedented levels since the collapse of the bubble economy.
The gap rose 1.9% to close at 30,084.15 on Monday, amid signs that an economic recovery is intact at home and hopes for progress in US stimulus talks. While global stocks have reached new heights in recent months, the Nikkei 225 needs to gain nearly 30% to break its 38,915.87 record. This was achieved in the last 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 in 2012, following the disaster of the previous year. Former Prime Minister Shinzo Abe’s efforts to revitalize the economy and increase corporate value through better governance since taking office in 2012 have supported stock price gains ahead of this year’s rally.
A brief breach of the 30,000 shows that “all kinds of investors come in to buy Japanese stocks with a totally optimistic outlook,” said Shoji Hirakawa, chief global strategist at Tokai Tokyo Research Institute Co.
This opinion was stated on Monday, when Japan announced that the gross domestic product increased annually by 12.7% over the previous quarter in the three months to December, as exports continued to recover and government incentives fueled consumer spending, despite the coronavirus.
Continued economic growth is a contributing factor to the strengthening of Japanese equities, according to Nikko Asset Management Co. chief global strategist John Vail, who welcomed strong data on exports and private investment. Japan’s reasonable valuations compared to those during the balloon era, as well as improved profits and shareholder returns, are also strengths, he said.
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“There are always doubts that permanently indicate demographics,” Vail said, “but that hasn’t stopped a tremendous increase in companies’ revenues, including from Japan’s extensive global production bases.”
Foreign buyers
Foreign investors turned net buyers into cash and futures for the first time in four weeks, buying about 856 billion yen ($ 8.2 billion) during the week ended Feb. 5, according to data from the Japan Exchange Group. Foreigners, who last year unloaded more than $ 59 billion from local stocks, are expected to become net buyers in 2021, as the economic recovery returns globally, making Japan’s export-dependent attractive.
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“We are in a risky global environment, but the particular strength of Japanese equities speaks to the appetite for sensitive actions to business cycles and value stocks,” said Shogo Maekawa, strategist at JPMorgan Asset Management in Tokyo. “Foreigners may re-evaluate Japanese stocks.”
CEO of Daiwa Securities Group Inc. Seiji Nakata called the violation of the 30,000 mark a “symbolic” event that signals that the Japanese economy is back on its feet. The Nikkei 225 is probably heading for the 33,000 mark, he said in an emailed statement.
Like the Dow Jones industrial average, the Nikkei 225 is a price-weighted measure. The two most weighted stocks, Uniqlo Fast Retailing Co. and SoftBank Group Corp., account for almost 19% of the spread and, as such, have an oversized impact on its movements. Both stocks have risen in the last year, benefiting from the pandemic and the latter from Masayoshi Son’s record ransoms.
The weighted nature of the index price has drawn criticism over the years because it did not accurately reflect the state of the Japanese capital market. It is also notable for the lack of some of the largest stocks in Japan, including gaming giant Nintendo Co. and robotics automation specialist Keyence Corp.
Takeo Kamai, chief executive of CLSA Securities Japan Co., said the Nikkei 225 makes a convincing 30,000-mark escape will depend on the performance of US stocks in the coming days, as the domestic market does not have its own catalyst. “The movement feels very forward-looking,” he said.
The S&P 500 ended at some point last week great before a three-day weekend, adding over 1% for the week. However, Japanese equities outperformed US stocks so far this year, with the Nikkei 225 up 9.6%, doubling its S&P 500 gain.
– With the assistance of Toshiro Hasegawa and Shoko Oda
(Updates with the latest stock price changes throughout)