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Photographer: Noriko Hayashi / Bloomberg
Photographer: Noriko Hayashi / Bloomberg
The Japanese Nikkei 225 stock average surpassed 30,000 yen for the first time since August 1990, as it continued to climb to levels not seen since the collapse of the economic bubble.
The gauge rose 1.9% to close at 30,084.15 on Monday, amid signs of an intact economic recovery at home and hopes for progress in US stimulus negotiations. As global stocks have hit new highs in recent months, the Nikkei 225 still needs to gain nearly 30% to break its all-time high of 38,915.87. This was achieved during the last trading session of 1989, before the index lost more than half of its value in three years after the bursting of the economic bubble.
Japanese stocks rallied after hitting a low in 2012 following the earthquake 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.
The brief breakout of the 30,000 shows that “all kinds of investors are heading out to buy Japanese stocks with a totally optimistic outlook,” said Shoji Hirakawa, chief strategist of Tokai Tokyo Research Institute Co.
This view was confirmed on Monday when Japan announced that the gross domestic product grew 12.7% year on year from the previous quarter in the three months through December, as exports continued to rebound and government stimulus fueled consumer spending despite the coronavirus .
Continued economic growth is one of the factors contributing to the strength of Japanese stocks, according to John Vail, chief strategist of Nikko Asset Management Co., who praised strong data on exports and private investment. Japan’s reasonable valuations compared to those during the bubble era, along with improved earnings and shareholder returns, are also strengths, he said.
Read more: BOJ becomes Japan’s largest shareholder with $ 434 billion treasure trove
“There are always skeptics perpetually pointing to demographics,” said Vail, “but that hasn’t stopped tremendous growth in corporate profits, including those from Japan’s vast global manufacturing bases.”
Foreign buyers
Foreign investors became net buyers of cash and futures for the first time in four weeks, buying about 856 billion yen ($ 8.2 billion) in the week ended Feb.5, data shows of the Japan Exchange Group. Foreigners, who unloaded more than $ 59 billion in local stocks last year, are expected to go net buyers in 2021 as the global economic recovery recovers, making Japan dependent on exports attractive.
Read more: Foreign investors flock to Japan with Buffett’s seal of approval
“We are in a globally risky environment, but the particular strength of Japanese equities is indicative of the appetite for cyclically sensitive stocks and value stocks,” said Shogo Maekawa, strategist at JPMorgan Asset Management in Tokyo. “Foreigners can revalue Japanese stocks.”
Daiwa Securities Group Inc. CEO Seiji Nakata called the violation of the 30,000 mark a “symbolic” event that indicates the Japanese economy is back on its feet. The Nikkei 225 is expected to hit the 33,000 mark soon, 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, operator Uniqlo Fast Retailing Co. and SoftBank Group Corp., account for nearly 19% of the gauge and therefore have a disproportionate impact on its movements. Both of these stocks have surged over the past year, benefiting from the pandemic and the latest of Masayoshi Son’s record buyouts.
The price-weighted nature of the index has drawn criticism over the years for not accurately reflecting the state of the Japanese stock market. It is also notable for the absence of some of Japan’s biggest stocks, including gaming giant Nintendo Co. and robotic automation specialist Keyence Corp.
Takeo Kamai, head of execution services at CLSA Securities Japan Co., said the Nikkei 225 convincingly crosses the 30,000 mark will depend on the performance of US stocks in the coming days as the domestic market lacks a catalyst. “The movement seems very focused on the future,” he said.
The S&P 500 ended last week at an all time high high before a three-day weekend, adding more than 1% for the week. Still, Japanese stocks have outperformed their US peers so far this year, with the Nikkei 225 rising 9.6%, doubling the gain of the S&P 500.
– With the help of Toshiro Hasegawa and Shoko Oda
(Updates with the latest stock price movements throughout)
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