[ad_1]
Kuala Lumpur, Malaysia – For decades, international investors have shunned Japan’s stock market, whose meager gains reflected Japan’s prolonged economic stagnation.
Japanese stocks have been attracting the most attention recently, with the Nikkei Stock Average hitting a new high for the first time in 33 years.
After limping through Japan’s “lost two decades” after the bursting of the massive asset bubble of the 1990s, Tokyo’s benchmark index rose 28.2% last year, comfortably outperforming the U.S. S&P 500.
There are no immediate signs that the buying frenzy is slowing.
In January, the Nikkei Stock Average rose another 8%, with foreign investors net buying 956 billion yen ($6.5 billion) in Japanese stocks in one week.
Some market analysts believe that 2024 could be the year when Japan’s stock market finally surpasses its 1989 high of $38,915.87.
It was a “dramatic recovery story” for Japan, the world’s third-largest economy, said Nicholas Smith, Japan strategist at investment group CLSA.
“Profitability is recovering quickly from depressed levels. Earnings growth is strong while other companies are stumbling. Price/earnings are relatively low and growth is high,” Smith said. told Al Jazeera.
“What’s not to like? Companies are starting to return the cash they’ve accumulated to shareholders.”
A confluence of factors has made Japanese companies more attractive to foreign investors than at any time in decades.
Recent corporate governance reforms promoted by the Tokyo Stock Exchange have led Japanese companies to aim to increase shareholder returns through share buybacks and increased dividends.
The weak yen, which is at its lowest level since the 1990s, has boosted corporate profits and further increased the value of Japanese stocks, which are already cheap by international standards.
Billionaire investor Warren Buffett, who has garnered the most attention as a seller of Japanese stocks, cited Japan’s five largest stocks as the reason for his $6 billion stake in the company during the coronavirus pandemic. He cited the “ridiculous prices” offered for the trading company’s shares.
Under Prime Minister Fumio Kishida’s push for a “new capitalism,” Tokyo is also seeking to encourage the transition from savings to investment, with the Japan Individual Savings Account (NISA) program with increased annual investment limits and extended tax-free periods. has been restarted.
There are also signs that Japan’s economy is finally starting to break out of a decades-long deflationary spiral, with workers last year posting the biggest wage increase since the early 1990s.
Ryota Abe, an economist at Sumitomo Mitsui Banking Corporation’s (SMBC) Global Markets Treasury division, said expectations that wage growth will continue to accelerate are the biggest of several drivers of the stock market rally.
Prime Minister Abe told Al Jazeera: “Recent events have shown that the biggest change in society is that Japan’s business leaders, taking into account the inflation situation and companies, are thinking more seriously about the need for constant growth in wages.” It suggests that it has started.”
Japanese stocks have also benefited from weakness in other markets, particularly China.
Overseas investors pulled $29 billion out of China’s stock market last year and expected to move into the country in 2023 as the country’s economy grapples with challenges ranging from a government crackdown on private industry to a slow-moving real estate crisis. 90% of the investment disappeared.
Still, analysts are divided on how long the jovial moment for Japanese stocks will last.
Martin Schulz, a senior researcher at Fujitsu Research Institute, said Japan’s stock market could continue to deliver strong returns as corporate executives seek to improve productivity and increase dividends to shareholders.
“While upside is limited in low-growth economies, large companies benefiting from long-term trends such as digitalisation, renewable energy and Asian economic integration remain valuation-wise ahead of their peers,” Schultz told Al Jazeera. “We are lagging behind,” he said. “They have room to grow.”
Some see a near collapse on the horizon.
The yen is expected to appreciate significantly against the dollar this year as the US Federal Reserve begins to cut interest rates, which would hurt the affordability of Japanese stocks.
Daiki Murai, a postdoctoral researcher at the Institute for Economic Policy Research at Leipzig University, said Japan’s attractiveness would fade as business confidence in the United States and Europe improved in a low interest rate environment.
“As a result, international capital flows are likely to flow out of Japan in search of higher yields,” Murai told Al Jazeera.
Opinions also vary on the extent to which rising Japanese stock prices portend a broader economic recovery.
Wage growth has stalled recently, although there are some bright spots in 2023. Structural problems, such as a declining population and a rigid labor market that resists reform, continue to cloud long-term growth prospects.
CLAS’ Mr. Smith expressed optimism about the direction of recent economic trends.
“Governments, departments and shareholders are working together in a way I have never seen before in my 35 years in this country,” he said.
Murai, a researcher at Leipzig University, said the strong performance of the stock market does not eliminate the serious challenges facing the Japanese economy.
“Prime Minister Fumio Kishida’s new capitalism has postponed comprehensive structural reforms of the Japanese economy. Former Prime Minister Shinzo Abe also included structural reforms in his economic policy package “Abenomics,” but only fiscal and fiscal reforms were implemented. It was just financial expansion.”
“Furthermore, there is little or no positive news regarding innovation from Japan’s corporate sector.”
Abe, an economist at Sumitomo Mitsui Banking Corporation, said the economic outlook would become clearer after wage negotiations between companies and employees in the spring.
Prime Minister Abe said, “In order to confirm that there is a virtuous cycle between wages and spending in the economy, we need to continue to pay close attention not only to wage increases in the second half of this year, but also to actual spending.”
He added, “I hope that the deflationary mindset of Japanese people will change further.” “If that happens, we will have confidence that stock prices will rise.”
[ad_2]
Source link
