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Japan’s benchmark Nikkei 225 index on Thursday surpassed a record set in 1989 before its financial bubble burst, ushering in an era of faltering growth.
The index closed on Thursday Up 2.2% at 39,098.68. It had been hovering near its 34-year high for several weeks. Its previous record was 38,915.87, which was set on December 29, 1989.
This was more than a generation ago, at the height of Japan’s postwar boom.
After the peak, as banks wrote off nearly 100 trillion yen of bad loans, shares fell well below multi-year records – falling below 8,200. After the triple disasters 2011 A massive earthquake and tsunami and meltdown at the Fukushima Dai-ichi nuclear power plant in northeastern Japan.
But the market has posted sharp gains in recent months, helped by strong interest from foreign investors, who account for the majority of trading volume on the Tokyo exchange.
Unlike the United States, where stocks have topped record highs on expectations that the Federal Reserve will begin cut high interest rates Once it was determined that inflation was indeed under control, the benchmark rate in Japan has remained below minus 0.1% for more than a decade.
news that the economy went into recession There are hopes in late 2023 that the Bank of Japan will stick to the easy money policies it has been using to stoke inflation and push growth higher.
Of the money that the central bank has injected into the economy, a lot of it has gone into the stock market. And many global investors are shifting their portfolios away from China as its economy slows. Tension has increased between Washington and Beijing,
Share prices in Tokyo have risen 15% in the past three months and about 44% in the past year. In Shanghai, prices have fallen more than 11% from a year ago, while Hong Kong’s Hang Seng index is down nearly 22%.
Analysts say record growth in corporate earnings and better corporate governance have increased the appeal of Japanese stocks.
“As Japanese companies are showing signs of change, I think investors will be watching closely,” Hiromi Yamaji, group CEO of Japan Exchange Group, said in an online briefing sponsored by The Financial Times on Wednesday.
While many elderly Japanese are reluctant to invest in stocks after the shock of losing their savings when the bubble burst in the early 1990s, younger investors are less cautious, he said.
“The generation is changing,” Yamaji said.
Changes to the Nippon Individual Savings Account program – which offer tax-free benefits – that took effect in January have attracted investors seeking higher returns in stocks, although analysts say much of that money is going overseas. Has gone to the markets.
Still, even a sliver of the 1.05 quadrillion yen (about $7 trillion) in savings held by Japanese households makes a big impact.
Additionally, the Government Pension Investment Fund, one of the world’s largest institutional investors, has been increasing its investments in stocks, helping push prices higher.
Foreign investors, who account for more than two-thirds of business activity in Japan, are looking for investments at bargain prices. Yen weakness against US dollarWhich is trading at around 150 yen compared to around 140 yen a year ago.
International investors bought 125.2 trillion yen worth of Japanese shares in January, according to the Tokyo Stock Exchange, double the amount from a year earlier. As is true in the United States, some of the biggest winners have been technology companies like Renesas, SoftBank and Tokyo Electron.
So far, experts say Japan’s stocks are not overvalued.
The price-to-earnings ratio for the Tokyo bourse is around 16, compared to 23 for the S&P 500, 24 for India’s Sensex and 8 for Shanghai. Investors in Tokyo stocks earned returns of more than 28% in 2023, according to the Nikkei website.
Meanwhile, another completely A different scenario is going on in China, where markets have never fully recovered from the 2015 recession, which caused trillions worth of losses. The Shanghai Composite Index is down about 10% from a year ago and about 5% from three months ago.
Shenzhen’s smaller bourse has fallen about 25% last year, while the Hang Seng index, on Hong Kong’s bourse, the world’s fifth-largest, is down about 20%.
Tensions between Beijing and Washington have cooled markets in both Hong Kong and the Chinese mainland, forcing companies to think more carefully about where to invest.
Former President Donald Trump’s recent comments about raising tariffs on imports of Chinese products to 60% or even higher have also added to the pessimism in Chinese markets.
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