- Topics continued to trade higher due to utilities, consumer cycles, technology and financials: Tokyo Electron, Oriental Land, SoftBank Group, Sony and Nintendo led the way.
- “Foreign investors are back – which says something about the nature of the stock market recovery in Japan,” Societe Generale’s Asia equity strategists said in a Tuesday note.
A general view shows the city’s sky as people stand at the observation deck of Mount Roppongi to watch the full moon in Tokyo on September 21, 2021. (Photo by Philip Fong/AFP) (Photo by Philip Fong/AFP via Getty Images)
Philip Fong | Afp | Good pictures
Japan’s TOPIX index hit its highest point since August 1990, a sign that foreign investors are returning.
The Tokyo price index, also known as the Topix, has gained more than 6% year-to-date. The broad-based index, which includes around 2,000 components, outperformed its regional peers in the Asia-Pacific region.
The Topix rose 0.6% on Tuesday and traded higher on Wednesday, led by utilities, consumer sentiment, technology and financials. Shares of Tokyo Electron, Oriental Land, SoftBank Group, Sony and Nintendo were the gainers since Wednesday morning.
“Foreign investors are coming back – which says something about the nature of the stock market recovery in Japan,” Societe Generale’s Asia equity strategists Frank Benzimra and Tsutomu Saito said in a Tuesday note.
“It’s low [of] “Terms trade more than broad-based upside on fundamentals, strong domestic demand and more generous supply policy (acceleration of stock buybacks),” he wrote.
The firm noted that foreign investors bought a net 2.1 trillion yen ($15.4 billion) worth of Japanese stocks in April – making Japan’s corporate sector the largest net buyer of Japanese stocks.
The Nikkei 225 rose to its highest level since November 2021, led by industrial names including NSK, Mitsubishi Materials and Nippon Sheet Glass. The index hit the psychological level of 30,000 on Wednesday morning.
Overweight in Japan equities, unconstrained, biased to banks, financials and value…
Earlier this year, stocks in Japan’s top five trading companies saw gains after Berkshire Hathaway raised its stake in Warren Buffett’s companies.
Monex Group’s Jesper Koll told CNBC that Buffett’s recent trip to Japan to meet with business firms is seen as a “stamp of approval” for investment in Japan.
Societe Generale strategists said their overweight position in Japanese stocks remained unchanged.
They expect the central bank to widen its yield curve control band by 100 basis points above and below its 0% target for 10-year Japanese government bonds.
We believe the main risks to our bullish view on Japanese stocks are foreign factors such as the US debt ceiling issue, recession risk and geopolitical risk.
Such a move would be “good for the yen, but not automatically bearish for stock prices as the yen remains in deep depreciated territory,” the strategists wrote, adding that the corporate sector would have a competitive advantage for the YCC band to widen.
The Bank of Japan shocked bond markets in December when it last widened the range from 25 basis points to 50 basis points.
The Japanese yen traded slightly weaker against the greenback at 136.43 on Wednesday.
In Kazuo Ueda’s first meeting as central bank governor, the Bank of Japan made no changes to its monetary policy while announcing a policy review.
SocGen strategists said the BOJ’s change in monetary policy would be “a very gradual process without removing the YCC”. [Yield Curve Control] Policy and interest rate hikes are expected over the next two years.”
“Retain an overweight position in Japan stocks, unconstrained, biased to banks, financials and value,” they wrote.
Goldman Sachs said in a May 12 report that the investment bank sees “multiple reasons” to support its bullish stance on Japanese stocks.
“In particular, we note solid fundamentals relative to stocks in overseas markets, and we think expectations for structural changes/reforms could further boost Japanese stocks,” Japan equity strategist Kazunori Tatebe wrote.
Noting the possibility of structural reforms in the future, he added: “We believe the main risks to our bullish view on Japanese equities are external factors such as the US debt ceiling issue, recession risk and geopolitical risk.”
— CNBC’s Lim Hui Jie contributed to this report.