Foreign Investors Are Warming Up

The Topix Index in Japan has reached its highest level since August 1990, indicating the return of foreign investors. Year-to-date, the Tokyo Price Index has recorded a gain of over 6%. This comprehensive index consists of approximately 2,000 constituents and has outperformed other Asia-Pacific regional indices.

  • Notable contributors to this upward trend were companies in the utilities, consumer cyclicals, technology, and financial sectors such as Tokyo Electron, Oriental Land, Softbank Group, Sony, and Nintendo
  • According to a note from Societe Generale's Asia equity strategists Frank Benzimra and Tsutomu Saito, the presence of foreign investors demonstrates a significant aspect of Japan's equity market recovery
  • They highlighted that this recovery is not merely a short-term trend but rather a broad-based upturn supported by strong underlying fundamentals, robust domestic demand, and an increase in share buybacks
  • The note further revealed that foreign investors purchased a net total of 2.1 trillion yen ($15.4 billion) worth of Japanese stocks in April. Additionally, Japan's corporate sector remains the largest net buyer of Japanese stocks, with a volume of 1.1 trillion yen year-to-date

In parallel, the Nikkei 225 also reached its highest level since November 2021. The upswing was driven by industrial companies such as NSK, Mitsubishi Materials, and Nippon Sheet Glass. Furthermore, the index surpassed the psychological threshold of 30,000 on Wednesday morning.

Strategists Maintain Bullish Outlook

Earlier this year, the shares of Japan's top five trading houses experienced a surge following Warren Buffett's investments, accompanied by hints of further potential investments. This move by the chairman and CEO of Berkshire Hathaway was seen as a positive endorsement for investing in Japan, according to Jesper Koll of Monex Group.

  • The SocGen strategists advised maintaining an overweight position on Japanese equities, particularly in banks, financials, and value stocks
  • They also highlighted the potential for further gains in Japanese stocks, citing solid fundamentals compared to overseas markets and the anticipation of structural changes and reforms

Kazunori Tatebe, an equity strategist at Goldman Sachs, emphasized the positive fundamentals and the potential for structural reforms to drive further growth. However, he cautioned that risks to this optimistic view could arise from external factors such as the U.S. debt ceiling problem, recession risks, and geopolitical uncertainties.

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products. Please note that the writer of this article is not registered as a financial advisor.

Credits

Photo by Jezael Melgoza / Unsplash.