The yen weakened after dovish comments from new Japan Prime Minister Shigeru Ishiba, and overseas funds rekindled interest in Japan's exporters.
Foreign investors bought a net 919.3 billion yen ($6.16 billion) worth of Japanese stocks in the past week ending Oct. 5, the largest weekly net purchase since April 13, according to Japan's Ministry of Finance. Warren Buffett's Berkshire also issued another 281.8 billion yen of multi-maturity bonds on Thursday (October 10), sparking speculation that the stock god will further increase its exposure to Japan assets.
Most analysts expect Japan's stock market to hold on to its previous gains for the rest of the year, buoyed by still-strong corporate earnings and improved corporate governance.
Recorded the largest weekly inflow since April
Berkshire's 281.8 billion yen multi-maturity bonds issued on Thursday consist of seven parts, with maturities ranging from three to 30 years, making it its largest yen-denominated bond since 2019. The deal sparked speculation that the stock god would further increase its exposure to Japan assets.
Earlier this year, Buffett increased his stake in Japan's five largest trading companies, pushing the Nikkei 225 index to a record high. Some market participants believe that if Berkshire's investment in Japanese stocks expands to other stocks such as banks and insurance companies, it may bring more upward momentum to Japanese stocks.
At the same time, given the Japan Bank of Japan's monetary policy pivot, the bond issuance transaction is also considered a key test of investor demand for yen-denominated bonds. Berkshire's long-term bonds are trading at a slightly higher premium than before, reflecting investors' cautious approach to the outlook for interest rates. At present, the market is widely expected that the Bank of Japan will hold its position at its next policy meeting on October 31.
However, against the backdrop of overall capital inflows, China-linked stocks in the Japan stock market have faced a sell-off in recent trading days. For example, Shiseido hit a two-week low on October 8, and the proportion of its China business in its operating income reached 26% (January ~ June 2024). Other related stocks, such as Yaskawa Electric, a large robot company, Taiyo Yuden, an electronic parts company, and Saizeriya, whose Chinese business accounts for about 30% of its revenue, also fell by 3%~5% in a single day on October 8. Saizeriya's stock price hit a two-month high on Oct. 7.
Tonichiro Kuroda, a senior market analyst at Matsui Securities in Japan, said, "Since September, the buying of China-related stocks in Japanese stocks has been eye-catching in anticipation of the announcement of a new round of fiscal stimulus policies to bring east wind to results." However, due to the fact that there was no mention of a new round of fiscal spending at the press conference on the 8th, investors turned to profit selling, and the situation of related stock prices rising in anticipation has ended. Hideji Hosoi, a senior strategist at Daiwa Securities, said, "Although China has introduced interest rate cut measures, it will still take some time for consumption to recover." It will take some time for Japan's China-related stocks to recover. ”
Japanese stocks are expected to hold on to their upward trend this year
Since the beginning of this year, Japan's stock market has recorded one of the best performing markets in the world at a time when global markets are frequently in turmoil due to global central bank monetary policies, geopolitical conflicts, and multinational elections. However, in the global market earthquake in August, the Japan stock market also became the "epicenter" for a time.
Previously, after a net purchase of about 6 trillion yen in the first half of the year, foreign investors have sold about 5.42 trillion yen worth of Japanese stocks since the second half of this year.
For the follow-up trend of Japanese stocks, the average forecast of nine analysts surveyed by the media on September 27 ~ October 7 for Japanese stocks is that although the Nikkei 225 index is unlikely to regain the historical record in July, it may rise by more than 1% from the current level by the end of this year to 39844 points, and the broader Topix index is also expected to rise by more than 2% to 2797 points, bringing the annual gains of the two indexes to 19% and 18% respectively. Corporate earnings remain strong in the eyes of analysts surveyed, and Japanese stocks are expected to hold on to their gains this year after previous turmoil.
Analysts have continued to raise their earnings estimates for the Topix index to about 188 points this year, as Japanese stocks hit new highs, expecting earnings per share (EPS) to rise to about 188 points, as the yen's stronger trend weakened after Shigeru Ishiba and Bank of Japan Governor Kazuo Ueda recently signaled a pause on further interest rate hikes, and companies have the ability to pass on cost increases to consumers. As of June, Japan's 500 largest listed companies had a record net profit of 15 trillion yen ($101 billion), the data showed.
For some time, the biggest threat to Japan corporate earnings has undoubtedly been the yen's rebound. The yen has risen 12% against the dollar in the last three months to the end of September. During the same period, the Topix index posted a quarterly loss for the first time in two years. But Daisuke Uchiyama, a senior strategist at Okayama Securities in Tokyo, said, "Admittedly, there are still many things to worry about, but this has not completely dampened investor sentiment." The outlook for strong corporate earnings in Japan will continue the upward trend in Japan's stock market into December. ”
Ikuo Mitsui, a fund manager at Aizawa Securities, also said concerns that the yen's appreciation threatened Japan's exporters as the pace of narrowing of the U.S.-Japan interest rate differential slowed. He also warned that even if the yen appreciates, companies will succeed in passing on higher costs to customers. He expressed optimism about Japan's infrastructure companies, which are less affected by the risk of a global recession.
Affected by the historic rally in China's stock market?
In addition, analysts are equally concerned about whether the "historic" recovery of China's stock market will lead to a "land subsidence" in Japanese stocks.
Alexander Wolf, head of Asia investment strategy at JPMorgan Chase, said: "We are indeed more optimistic about Chinese equities, but Japan equities also have upside potential. We remain structurally bullish on Japanese equities as we see Japan's nominal growth and earnings both moving higher. "A earnings revision index compiled by Goldman Sachs showed that analysts raised their Japan corporate profit forecasts more than downgraded them.
But looking at the position movements of hedge fund clients collected by Goldman Sachs, Japan and China become perfect mirrors after 2023. Goldman Sachs' Japan equity strategist Kazuri Kenbe said that "in the short term, there is indeed a competition for capital between the two." Eric Veiel, head of global investment at United States asset management giant T. Rowe Price, also said that "as global investors increase interest in China, money may flow out of Japan." "As of Oct. 8, the CSI 300 index is up 25% since September 24, while the Topix index is up just 0.1% over the same period.
Another question that market participants are concerned about is whether China's economic recovery will lead to growth in the performance of Japan companies, which will benefit Japanese stocks. In this regard, Kohei Onishi, chief investment strategy researcher at Mitsubishi UFJ Morgan Stanley Securities, said that if the "credit impulse", which shows the growth of new loans in China as a proportion of nominal gross domestic product (GDP), and the volatility of the Nikkei Stock Average are superimposed, it can be found that the correlation between the two is gradually weakening or even disappearing after 2023. "As a result, investors' attention to Chinese business has declined when looking at the performance of Japan companies." He said. Correspondingly, the impact of Japan's inherent themes on Japanese stocks is increasing, and "the potential for years of benefits from improved corporate governance in Japan has not changed the constructive view on Japan equities," Vio said. ”
(This article is from Yicai)