The Resilience of the Japanese Market
After more than three decades, the Nikkei stock index witnessed an extraordinary ascent, soaring by 2.2% to breach the elusive 39,000 level. This breakthrough is not merely a numerical conquest but a testament to the unwavering resilience of the Japanese market post the devastating 1989 asset bubble collapse.
Driving Forces Behind the Boom
Corporate Governance Reforms: The Tokyo Stock Exchange has been championing enhanced corporate governance, advocating for a sharper focus on shareholder returns through strategies such as share buybacks and increased dividends. These reforms have transformed the perception of Japanese firms, making them more appealing to foreign investors.
A Weak Yen: The drastic depreciation of the Japanese yen against major currencies like the US dollar has proven to be a boon for Japanese exporters. With foreign earnings translating into increased yen, profits have soared, instilling a newfound confidence in investors.
Robust Global Economy: Against the backdrop of a robust global economy, the overall sentiment towards equities worldwide has been overwhelmingly positive. This favorable climate has spilled over into individual markets, including Japan, propelling its stock market to new heights.
Improved Corporate Performance: Japanese companies have exhibited a remarkable turnaround in financial performance, boasting record earnings in recent quarters. This newfound financial vigor has bolstered investor confidence and infused the market with optimism.
Increased Foreign Interest: Foreign investors have played a pivotal role in the recent surge of the Japanese stock market. Notably, in January alone, foreign investors poured a staggering 125.2 trillion yen into Japanese stocks, doubling the figure from the previous year. Paralleling trends seen in the US, technology companies have emerged as significant beneficiaries of this wave.
Perception of Valuation
Despite scaling record highs, analysts widely concur that Japanese stocks are not currently overvalued. The Tokyo market’s price-to-earnings ratio hovers around 16, significantly lower than both the S&P 500 and the Sensex, standing at 23. In the fruitful year of 2023, the Nikkei 225 enjoyed a remarkable return exceeding 28%.
The perspectives articulated in this content are the sole viewpoints of the author and do not necessarily align with those of Nasdaq, Inc.
