Japanese stocks are soaring. What is behind the outbreak.

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Japanese stocks reached their highest levels in 31 years on Tuesday. Of course, global markets are in a good mood, as investors remain optimistic about the continued economic recovery. But the global economy is also serving Japan well.

O

Nikkei 225

rose 714 points, or 2.7%, on Tuesday. The index stabilized at 27,568 and reached 27,601 shortly, the highest level the index has reached since 1989.

Other global stocks burst on Tuesday, but not as much. O

Asia Dow

index closed with a high of 1.6%, the

Hang Seng

The index rose 1%, and the

Stoxx Europe 600

index rose almost 1%. The US stock market is up in recent trading sessions, but took a brief break on Tuesday with the

Dow Jones Industrial Average

it dropped about 100 points in the midday negotiations. While Covid-19 cases continue to increase worldwide, fiscal stimulus measures are supporting consumers and businesses, and several biotechnology companies are en route to mass vaccine distribution.

But some recent developments stand out for the Japanese economy and markets. Nikkei companies are exposed to the right geographies and sectors to benefit from developments.

Fiscal stimulus in key areas around the globe is gaining momentum. The United States has approved a $ 900 billion fiscal stimulus project that will provide help to individuals and small businesses. South Korea’s President Moon Jae-in confirmed that a third round of direct payments, worth 9.3 billion won, or about $ 8.5 billion, to individuals and small businesses would come out in January . Companies on the Nikkei 225 average about 13% of their revenues in the United States and 2.8% in South Korea.

This is more exposed than other indexes worldwide. The companies on the Hang Seng index get 3% of the revenue from the United States and almost nothing from South Korea. The Stoxx 600 companies get almost 20% of the revenue from the United States, but only about 8% of the index is cyclical consumption, which will benefit as the economy recovers and consumers return to pre-pandemic – or higher – spending levels. This exposure is another key for Nikkei: about 18% of Nikkei 225 companies are cyclical consumer companies.

In addition, Japan is an export-oriented country that wants its currency to be relatively weak in order to make its exports globally competitive. The yen, however, appreciated against the dollar and the renminbi, both used to buy Japanese exports. Still, the currency’s headwind for Japan is being overcome by the ever-improving global economic environment, said Quincy Krosby, chief market strategist at Prudential Financial. Barron’s.

Japan’s recent strength has attracted notable investors. Warren Buffett, for example, made a surprising bet in the country in September.

Jim Rogers, a Singapore-based investor who co-founded the legendary Quantum Fund with George Soros, cited Japan’s monetary policy as a major force in the country’s bull market – a view he reiterated on Tuesday. “The head of the Bank of Japan goes to work early every morning like a good Japanese bureaucrat and prints money (‘unlimited’ is his word) as fast as he can. He then buys stocks, bonds and ETFs as fast as he can, ”wrote Rogers by email. He said he has ETFs from Japan.

Rogers says it helps Japan to have a new government, led by Prime Minister Yoshihide Suga. “New governments always do things to make people happy. This is no different. “

Write to Jacob Sonenshine at [email protected]