©Reuters. People stand in front of electronic screens showing Japan’s Nikkei stock average outside a broker in Tokyo, Japan, February 22, 2024. REUTERS/Issei Kato
(Reuters) – The stock average hit a record high on Thursday, surpassing its 1989 peak after a year-long rally driven by cheap valuations, corporate reforms and investment flows diverted by a struggling Chinese stock market.
Here’s what analysts and investors say:
TSUTOMU YAMADA, SENIOR MARKET ANALYST, KABU.COM SECURITIES, TOKYO
“For us traders, this marks the arrival of a new era. It seems that the stock market is telling us that we are finally out of deflation and that a new world has opened up.
“Compared to 34 years ago, the composition of the stock market is completely different. Today, considering the Nikkei average as a profitable stock, it is still quite easy to buy. 39,000 is just an intermediate stage.”
JAMIE HALSE, PORTFOLIO MANAGER, PLATINUM ASSET MANAGEMENT, SYDNEY
“There are clear fundamental drivers for this rally and I think these factors can support further gains going forward. We are still in the early stages of corporate governance and capital allocation reforms.
“With increasing cash returns to shareholders, I can see the market potentially moving higher.”
BART WAKABAYASHI, BRANCH MANAGER, STATE STREET, TOKYO
“We’re getting closer to bubble state here. But interestingly, our custody data doesn’t show aggressive buying of Japanese stocks by real money investors. I tend to think there’s a lot of local money. Maybe the NISA initiative had a negative effect” positive effect.
“I am in no way denying that there is foreign money flowing into Japan, but I think the foreign investment part of what is reported may be a bit exaggerated. Living in Tokyo, it seems like a bubble, especially when you look at real estate. “
RYOTA ABE, ECONOMIST, SMBC, SINGAPORE
“It’s good news, but I think there is a strong tailwind from Nvidia (NASDAQ:)’s strong results. Looking ahead, I imagine the Nikkei will be volatile in the near term due to battles between those who profit and those who profit expect it to go higher to 40,000, however I assume the buying pressures are stronger than the selling pressures.
“The weak yen will help Japanese companies improve their financial results in the next quarter, and it is also good news that more and more Japanese companies decide to raise wages more than last year.”
YUICHI KODAMA, CHIEF ECONOMIST, MEIJI YASUDA RESEARCH INSTITUTE, TOKYO
“The first word that came to mind is ‘finally’. Finally, after more than 30 years, it has surpassed its bubble-era high. But today, Japan is not ‘bubbly’ at all: it is not overvalued at all. Momentum for further growth is there. It will subsequently reach 40,000 yen levels.”
MATT SIMPSON, SENIOR MARKET ANALYST, CITY INDEX, BRISBANE
“The Nikkei has made its inevitable run to 39k and is now trading above it by a whisker. But I always remain skeptical of such big number breaks as they can suck in the latecomers, only to find that they have been ‘caught up’ caught off guard at 39k. a record high before a volatile shakeout ensues. Call me a skeptic, but I never trust the first breakout. Even if it shows the potential for a possible upside.”
TONY SYCAMORE, MARKET ANALYST, IG, SYDNEY
“The Nikkei has made its way into blue sky territory and appears increasingly comfortable with the idea that BOJ policy normalization is imminent, which reduces the possibility of a potential correction from that direction.
“I expect the 40,000 level to become the next market target for the Nikkei. If names of the moment really start to get involved and increase positioning on the breakout of the 1989 high, we could see a “blow” type move -off” short term towards 42,000.”
RICHARD KAYE, PORTFOLIO MANAGER, COMGEST, TOKYO
“The big components of the Nikkei are in a strong position: Fast Retailing establishing its brand in Asia, Tokyo Electron ahead of a strong recovery in semiconductor spending, Advantest taking a share in Nvidia chip testing, KDDI (OTC:) which benefits from a rationalization of mobile tariffs and an expansion of its business, Toyota (NYSE:) winning share thanks to its hybrid strategy. And it is very unusual that such favorable circumstances for all these components of the Nikkei coincide.
“Japan has two key differences with every other market: Its currency is at its lowest in decades and is widely seen as an asymmetric bet as the yield gap with the U.S. narrows, and its domestic investor base includes some of the largest investors in the world, investors like Japan Post Bank, but have drastically underweighted their market for 30 years.
“I think both of these factors…could fuel the Nikkei beyond what valuation and earnings analyzes alone might suggest.”
KYLE RODDA, SENIOR MARKET ANALYST, CAPITAL.COM, MELBOURNE
“It was a near-perfect mix of factors that pushed Japanese stocks to record highs. The Nikkei was the quintessential soft-landing operation, requiring a resilient global economy and the resulting depreciation of the yen, coupled with a weakening of global inflation momentum and limited volatility in interest rate markets. push higher.”
ILAN FURMAN, CHIEF INVESTMENT DIRECTOR, BRIDGEWISE, LONDON
“The rally in the Nikkei index was partly attributed to flows diverted from China, amid investor concerns over China’s faltering economy and the stock market collapse.”
“The performance of Japanese stocks is quite diversified across sectors, suggesting that investors are not focusing on Chinese proxy names or sectors, but are actually looking to diversify.”
SHOKI OMORI, JAPANESE HEAD DESK STRATEGIST, MIZUHO SECURITIES, TOKYO
“The Nikkei will continue to rise, with foreign investors expecting domestic investors to support Japanese stocks through the new NISA program. The premium offered by Japanese stocks and aggressive “animal spirit” buying will push Japanese stocks higher. Chinese data turns out weak, more Asian money will flow into Nikkei.”
DAN HURLEY, PORTFOLIO SPECIALIST FOR JAPANESE AND EM EQUITIES, T. ROWE PRICE, LONDON
“The market drivers are very different compared to the 1989-90 period; in the late 1980s, the rally was driven by very high land prices and great exuberance in terms of foreign and domestic investors: Japan was the 45% of the global MSCI, today it is only 6%.
“In 1989, the Nikkei traded at an incredible P/E (price to earnings) of 61x, today it is only 15x P/E, essentially in line with the long-term average of 14x. The price/book ratio ( P/B) was 5.6x in 1989, today it is 1.4x. Today there are no signs of a bubble.”
ANDREW SHEETS, GLOBAL HEAD OF CORPORATE CREDIT RESEARCH, MORGAN STANLEY, LONDON
“We don’t think positions in Japanese stocks are overcrowded. The next challenge is that so far the equity strength has coincided with a weak currency. This will be the next test, can the market stand on its own if the currency moves sideways?
“There are scenarios where the yen strengthens slightly and that is positive for some sectors. We have a favorable outlook for Japanese stocks.”
BRUCE KIRK, JAPANESE CHIEF EQUITY STRATEGIST, GOLDMAN SACHS, TOKYO
“When the TSE resumed its focus on corporate governance in late January last year, the Nikkei was more than 40% away from these all-time highs and there was a lot of skepticism about its chances of success. Why the TSE had improved Investors’ perception of Japan in such a short period of time is absolutely remarkable.”