Japanese stocks extended gains, with the Nikkei 225 Stock Average reaching its highest in nearly 33 years, as optimism the US will avoid default added to bullish sentiment that has fueled one of the world’s best equity rallies of 2023.
The Nikkei 225 advanced 0.8% to 30,808.35, pushing the blue-chip gauge to levels unseen since August 1990. The Topix, which maintained a 33-year high set earlier this week, gained 0.2%, as electronics makers and service-sector firms provided the biggest boosts.
Both gauges completed their sixth-straight week of gains as strategists from Goldman Sachs Group Inc. to Macquarie Group Ltd. said the case for a bull run is solid thanks to corporate governance reforms boosting valuations and loose monetary policy adding to tailwinds. Morgan Stanley forecast the Topix could eventually climb an additional 9% to reach 2,350, propelled by themes on return-on-equity improvement and a favorable yen.
“We believe that there are a lot of legs to this rally,” Belita Ong, chairman at Dalton Investments LLC, said on Bloomberg TV. “The reality is that the Japanese market has been cheap for a very long time and for good reason, because managements were not willing to share their profits with investors.”
The latest leg of the rally gained momentum on Friday as the yen touched its lowest this year, lifting shares of exporters and increasing the purchasing power of dollar-based investors looking to buy Japanese stocks. Exchange data released Thursday showed foreign investors were net buyers of Japanese equities for a sixth-straight week, acquiring a net ¥781 billion ($5.6 billion) worth of shares and futures in the week ended May 12.
The Topix achieved the longest weekly winning streak since November 2017. Still, the index remains 25% away from its 1989 peak.
Read: Volatility Jumps as Investors Caught Off Guard by Nikkei Rally
Investors in Tokyo also breathed a sigh of relief on signals that American lawmakers are making progress on debt-ceiling talks and will be able to avert a first-ever default. The S&P 500 hit a nine-month high on Thursday, while the Nasdaq 100 rallied almost 2% to the highest since April 2022.
Here’s what analysts and investors are saying about Japan stocks:
Belita Ong, chairman at Dalton Investments LLC:
“We’ve seen record share buybacks, record dividend increases and you know, a huge increase in activism in the Japanese market. So all of this has encouraged foreigners to come back into the Japanese market and for good reason.”
Jack Ablin, chief investment officer at Cresset Capital Management:
“Japan is my favorite global stock market at this point. It’s getting everything it’s wished for.”
“We are about 50% overweight Japanese stocks in our developed-market strategy. Stocks in Japan are cheap in so many ways. Will it be a long-term play? Probably not. It’s probably going to be a cyclical play.”
“Japan has been out for so many years, but things are quickly changing. When it becomes ‘in’ again and people rush to boost their exposure, we’ll get out.”
Evgenia Molotova, senior investment manager at Pictet Asset Management:
“We believe Japan will continue to demonstrate strong performance in the medium term.”
“Despite strong performance YTD, majority of the sectors are still at large discount to S&P, which makes valuations appealing.”
Oliver Blackbourn, multi-asset portfolio manager at Janus Henderson:
“With recession risks in the US rising, this is a significant factor in investor decisions around owning Japanese equities over the remainder of this year.”
Takeru Ogihara, chief strategist at Asset Management One Co.:
“The Nikkei price has exceeded the 30,000-yen mark, and from this point on, there is a sense of caution as it has risen quite rapidly. The support from the macroeconomic aspects is still a little weak for the market to move higher.”
--With assistance from Sagarika Jaisinghani and Elena Popina.