Japanese Stocks Attract Global Investors as Market Rallies
Japanese stocks have seen their strongest start to a year in a decade, enticing foreign investors and challenging the skepticism of fund managers, who have been disappointed by false starts in the past. The Nikkei 225, which focuses on exporters, has surged 27% so far this year, while the broader Topix index, which is weighted more towards domestic companies and banks, has climbed 21%. Even when compared in dollars, the Japanese indices are among the best-performing in global markets.
BlackRock, the world’s largest asset manager, has announced that it is reconsidering its cautious stance on Japanese stocks. In February, the company reduced its exposure to Japanese stocks, but now believes that recent guidance from the Tokyo Stock Exchange, which highlights the importance of companies’ share value, could be a turning point for the country’s shares. Additionally, BlackRock’s assessment of the new Bank of Japan governor, Kazuo Ueda, suggests that the central bank is likely to maintain its ultra-low interest rate policy and tolerate higher inflation.
Foreign investors have been buying Japanese stocks for the past 12 weeks, with net purchases of cash equities amounting to ¥6.17tn ($43bn) in the past three months. Some analysts predict that there could be another $70bn in flows as global investors increase their exposure to Japan. The recent interest from foreign investors may also influence domestic institutional funds and individual investors, leading to further participation in the market. However, these investors are more cautious and will likely evaluate corporate earnings and the performance of Japanese equities against a falling US stock market.
The interest in Japanese stocks is reflected in the monthly global fund manager survey by Bank of America, which showed that allocations to Japan reached a 19-month high. Some respondents even identified Japan as a potentially overcrowded trade. Swiss private bank Union Bancaire Privée recently acquired Angel Japan Asset Management, signaling an increasing interest from its clients to expand their exposure to Japan.
Barclays analysts also believe that Japanese equities continue to shine, citing the weakened yen as a contributing factor. The yen’s current weakness against the dollar, reaching its lowest level in 20 years, makes Japanese stocks an attractive and affordable option for foreign investors. The hope of improved profitability and the expectation of a new bull market in Japanese equities are further driving interest in the market.
Overall, the robust performance of Japanese stocks this year has attracted global investors and sparked a potential turnaround in sentiment towards the country’s equities. The guidance from the Tokyo Stock Exchange and the stance of the new Bank of Japan governor have contributed to renewed confidence. As foreign investors continue to increase their exposure to Japan, it is expected that domestic investors will follow suit, providing further support for the market.
