The Tokyo Price Index, or Topix, has hit its highest point since August 1990, indicating that foreign investors have returned to the Japanese equity market. The broad-based index, composed of about 2,000 constituents, has climbed more than 6% since the beginning of the year, outperforming its regional peers in the Asia-Pacific. On Tuesday, the Topix rose 0.6%, and on Wednesday, it continued to climb, led by utilities, consumer cyclicals, technology, and financials. Shares of Tokyo Electron, Oriental Land, Softbank Group, Sony, and Nintendo were among the top performers.
Foreign Investment in Japanese Stocks and Strong Domestic Demand Drive Upturn
According to Societe Generale’s Asia equity strategists Frank Benzimra and Tsutomu Saito, “Foreign investors are back – which says something about the nature of the equity market recovery in Japan.” The firm noted that foreign investors purchased a net JPY 2.1 trillion ($15.4 billion) worth of Japanese stocks in April. However, Japan’s corporate sector remains the largest net buyer of Japanese stocks, with a volume of JPY 1.1 trillion year-to-date. The strategists believe that the upturn is less of a duration trade and more of a broad-based upturn based on fundamentals, robust domestic demand, and more generous distribution policy.
Nikkei 225 Also Reaches Highest Point Since November 2021
The Nikkei 225 also reached its highest point since November 2021, led by industrial names such as NSK, Mitsubishi Materials, and Nippon Sheet Glass. The index surpassed the psychological level of 30,000 on Wednesday morning.
Bullish Stance on Japanese Equities Remains Unchanged
Societe Generale strategists’ overweight position on Japanese equities remains unchanged. They expect the central bank to widen its yield curve control band to 100 basis points above and below its target for 10-year Japanese Government Bonds of 0%. Although such a move would be bullish for the yen, the strategists believe it would not automatically be bearish for share prices, as the yen remains in deep undervalued territory. The corporate sector would have a competitive advantage with the YCC band being widened. Goldman Sachs’ bullish stance on Japanese stocks is also supported by solid fundamentals compared to overseas markets and expectations for structural changes/reforms that could push Japanese equities up further.