Is ‘dark horse’ Nikkei ready to reclaim its 1989 glory?

People pass by an electronic screen showing Japan's Nikkei share price index inside a conference hall on June 14, 2022 in Tokyo, Japan.  - Reuters
People pass by an electronic screen showing Japan’s Nikkei share price index inside a conference hall on June 14, 2022 in Tokyo, Japan. – Reuters

Tokyo: Japan’s benchmark Nikkei is consolidating as large foreign funds that have stayed away from the market for decades are now playing their part to help Nikkei regain its 1989 glory.

When the Nikkei 225 (.N225) soared 27% in the first half of the year, their money was on the sidelines, as managers habitually placed a lower weighting on Japan than the benchmark — settings that didn’t budge for years while the stock index did. disappointed, reuters informed of.

There has been a change in mindset, with the best six months of profits in a decade, corporate reform and the continuation of ultra-easy monetary policy supporting economic recovery.

Following the development, the research arm of BlackRock, the world’s largest asset manager, shifted its outlook on Japanese equities to neutral from underweight.

“We look for further evidence of corporate reform to support enthusiasm for our equity markets, which has dogged foreign investors so far this year,” wrote analysts at BlackRock Investment Institute in their mid-year outlook report last week. have taken.”

Nomura Securities expects others to follow soon. Japan’s biggest brokerage forecast potential inflows from overseas long-only investors of about 10 trillion yen ($70 billion) as they largely rebalance portfolios in a migration toward neutral weightings.

Nomura said this amount would be enough to lift the Nikkei 5,000 points. That would take the index, which closed at 33,338.70 on Wednesday, a long way from its 1989 peak of 38,957.44 during Japan’s bubble era when asset prices skyrocketed.

“It’s not like we’ve already seen fairly aggressive investments from offshore investors materialize in Japan’s equity markets,” said Yunosuke Ikeda, Nomura’s chief equity strategist for Japan.

on the moon

“I don’t think the Nikkei will return to the old range between 25,000-30,000,” said a Japanese pension fund manager, who requested anonymity because he is not authorized to speak to the media.

The fund manager said that 39,000 is “not just a dream. It can be achieved. It is not a moonshot.”

Archie Signor, portfolio manager at T. Rowe Price, said his firm has been fielding inquiries about Japanese investments from clients or sectors that have never inquired about Japan in the past.

“A lot of sticky money is going to Japan,” he said. The poor performance of China’s markets this year and negative sentiment prompted global investors to look elsewhere, saying “there are too many people who are always underweight.”

“Japan has been attractive for a long time, but you always had other markets that were more attractive or equally attractive, and China was one of them,” Signor said.

“Now, a lot of property owners have decided not to invest any more in China, and this has made Japan the top dog in Asia.”

Although billionaire investor Warren Buffett has made headlines with stock purchases in Japan, much of the flow has come from so-called fast money overseas, such as algorithmic traders or hedge funds investing with borrowed money.

The Nikkei reached 33,772.89 on 19 June, its highest point in 33 years, but suffered a sharp decline at the end of the month as short-term investors booked profits.

The data showed foreign investors have been net buyers of Japanese stocks every week since late March, selling equities totaling 9.9 trillion yen, but selling a net 543.8 billion yen in the week to June 24.

While many analysts and investors view the decline as a healthy and necessary retracement before the next leg of gains, 35,000 is often seen as a target for this year as slow-moving foreign investors begin buying into size. Are.

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