Photographer: Noriko Hayashi / Bloomberg
Photographer: Noriko Hayashi / Bloomberg
Japan’s Nikkei 225 Average Average reached 30,000 yen for the first time since August 1990, while continuing its charge back to levels never seen since the collapse of the economic bubble.
The indicator rose 1.9% to 30,084.15 on Monday, amid signs that the economic recovery is intact at home and hopes for progress in the US stimulus talks. Although stocks around the world have reached new heights in the past few months, the Nikkei 225 still needs to gain nearly 30% to beat its record 38,915.87. This was achieved in the last trading day of 1989, before the index lost more than half of its value in three years after the bursting of the economic bubble.
Japanese stocks have staged a recovery after hitting a low in 2012, following the earthquake disaster the previous year. Former Prime Minister Shinzo Abe’s efforts to revitalize the economy and increase corporate value through better governance since he took office in 2012 have supported the stock price gains ahead of this year’s rise.
The brief breach of 30,000 shows that “all types of investors are intruding to buy Japanese stocks with a totally optimistic outlook,” said Shoji Hirakawa, global chief strategist at Tokai Tokyo Research Institute Co.
This view was affirmed on Monday, when Japan announced that gross domestic product it grew 12.7% annualized in relation to the previous quarter in the three months to December, as exports continued to recover and the government stimulus fueled consumer spending, despite the coronavirus.
Continued economic growth is a factor contributing to the strengthening of Japanese stocks, according to Nikko Asset Management Co.’s global chief strategist, John Vail, who praised the strong export data and private investment. Japan’s reasonable valuations compared to those of the bubble era, as well as improved profits and return to shareholders, are also strengths, he said.
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“There are always doubtful people who perennially point to demographics,” said Vail, “but that has not prevented tremendous growth in corporate profits, including Japan’s extensive global manufacturing bases.”
Foreign buyers
Foreign investors became net cash and future stock buyers for the first time in four weeks, buying about 856 billion yen ($ 8.2 billion) during the week ending February 5, according to data from the Japan Exchange Group. Foreigners, who unloaded more than $ 59 billion in local stocks last year, are expected to turn buyers in 2021 as the economic recovery intensifies globally, making Japan, which depends on exports, attractive.
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“We are in a global risky environment, but the particular strength of Japanese stocks speaks of the appetite for stocks sensitive to business cycles and value stocks,” said Shogo Maekawa, strategist at JPMorgan Asset Management in Tokyo. “Foreigners may be reevaluating Japanese stocks.”
Daiwa Securities Group Inc. CEO Seiji Nakata called the 30,000 mark break a “symbolic” event that signals that the Japanese economy is back at its feet. The Nikkei 225 is expected to move to the 33,000 mark, he said in an e-mailed statement.
Like the Dow Jones Industrial Average, the Nikkei 225 is a weighted measure of price. The two stocks with the greatest weight, the operator Uniqlo Fast Retailing Co. and SoftBank Group Corp., represent almost 19% of the indicator and, as such, have a disproportionate impact on their movements. Both stocks soared last year, benefiting from the pandemic and the last of Masayoshi Son’s record buybacks.
The weighted nature of the index price has attracted criticism over the years for not accurately reflecting the state of Japan’s stock market. It is also notable for the lack of some of Japan’s biggest stocks, including the gaming giant Nintendo Co. and robotic automation specialist Keyence Corp.
Takeo Kamai, head of enforcement services at CLSA Securities Japan Co., said that whether the Nikkei 225 will convince the 30,000 mark convincingly will depend on the performance of American stocks in the coming days as the domestic market lacks its own catalyst. “The change looks very future-oriented,” he said.
The S&P 500 ended last week at a record 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 up 9.6%, doubling the gain on the S&P 500.
– With the assistance of Toshiro Hasegawa and Shoko Oda
(Updates with the latest stock price movements across)