The broad Topix index rose nearly 0.6 percent on Tuesday, taking its gains since 2023 to 13.9 percent and nearing its highest level since 1989. The Nikkei 225 has gained more than 16 percent since the start of the year and is again close to the maximum of the last 3 decades, making Japan one of the hottest markets in the world.
Foreign investors poured into stocks and futures contracts over the past five weeks, with net inflows over the period reaching nearly $30 billion, according to the Tokyo Stock Exchange (TSE), some of the biggest inflows in a decade.
In addition to excitement over the potential for a historic rebalancing of corporate priorities, investors also said Japan was benefiting from “non-Chinese” trade, a perception that Tokyo is a safe way to gain exposure to Chinese growth, but with a lower geopolitical risk.
The interest in Japan comes after years of anemic returns that have convinced many fund managers to stay away from Tokyo and its complicated corporate structures.
During the time that Japanese stocks recovered from the 1989 crash, US stocks rose more than 10-fold.
However, some analysts are coming around to the idea that the Tokyo stock market is currently a fund of undervalued, high-yield stocks with an accelerating wave of corporate governance improvements.
Shrikant Kale, Japan equity strategist at Jefferies, said he had not seen this much foreign investor interest in Japan since the start of the “Abenomics” era in 2012, when Shinzo Abe took over as prime minister and promised a series of market-oriented reforms.
Adding to this momentum was a rare visit to Japan by Warren Buffett last month, when the American investor said he was keen to increase his Japanese investment portfolio.
At the same time, Japan stands out as a developed Asian market that should benefit from China’s economic recovery, without great geopolitical risks.
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