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▼ Japan Stock Rally Hits Record Pace As Foreign Buying Tops $42bn
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Futures hint at cooling sentiment after 12-week streak of inflows
International investors have bought Japanese stocks at a record-setting pace, Tokyo Stock Exchange data released Thursday shows, but futures trading suggests they may be ready to take a breather.
Global investors bought a net 641.4 billion yen ($4.49 billion) in Japanese equities during the week ended June 16, for a 12th straight week of net inflows.
Their total net purchases have topped 6 trillion yen, or $42 billion, making the biggest streak in comparable data since 2003.
By comparison, the rally of late 2012 to early 2013 reached 5.7 trillion yen in 18 straight weeks of net inflows.
Among the global asset managers reassessing Japanese equities is France's Amundi, which has raised its view to neutral from negative/neutral.
"We're cautious on developed-market equities overall due to the risk of a U.S. recession. But Japanese equities are relatively positive," said Hiromi Ishihara of Amundi Japan.
Ishihara pointed to factors like hopes for corporate governance reform, a resilient economy and rising prices as a sign of escaping deflation.
U.K.-based Fidelity International has taken note of an improving business environment, as headwinds such as high materials prices and supply chain constraints ease up. Fidelity's latest survey of more than 100 of analysts worldwide showed Japan as the only region where sentiment among corporate managers had improved in recent months.
"We can expect earnings improvement to drive higher share prices," said Kenji Ojida, director of research at Fidelity.
Manish Bishnoi, a portfolio manager at U.K.-based Impax Asset Management, argues that Japan, as a resource importer, has for years been at the forefront of methods to more efficiently use energy and other resources.
Many Japanese companies can capitalize on this long-term trend, Bishnoi said, as businesses come under pressure to reduce their environmental impact and operate more sustainably. Impax in March opened a new office in Tokyo and has stepped up Japan equity research.
Market players are watching buying by international investors as an indicator of the medium-term outlook for Japanese share prices.
Rie Nishihara, chief Japan equity strategist at JPMorgan Securities Japan, noted that during past rallies, overseas investors' holdings of Japanese equities improved by around 1 percentage point.
"If foreign investors view the current Japan stock rally as comparable to those, we can expect about 50 trillion yen in buying," Nishihara said.
But stock futures are starting to send signals of a possible slowdown, amid wariness over the breakneck pace of gains along with concern about the U.S. economy, which has been a key support for Japanese corporate earnings.
Foreign investors were net sellers of futures last week, to the tune of 657.2 billion yen.
The Nikkei Stock Average has racked up 10 straight weeks of gains, for a total rise of 23% through June 16. It may be showing signs of faltering. The benchmark slipped 1% Thursday to end the day at 33,264, 1% below last week's close.
"We've gone from overheating, with twice as much buying as selling, to having some days recently where selling has prevailed," said Yusuke Sakai, senior trader at T&D Asset Management.
"There's a sense that foreign money that moved in early, like hedge funds, is stepping back for a while."
Natixis Investment Managers, which had been buying Japanese equities since late 2022, in May cut its view of the market from overweight to neutral, seeing it as a good time for some profit-taking.
The European asset manager sees a risk of the Bank of Japan adjusting its yield curve control policy when the policy board meets in July.
A rise in long-term interest rates and the yen would heighten market volatility and weigh on stocks, said Mabrouk Chetouane, head of global market strategy at Natixis Investment Managers.
International investors have bought Japanese stocks at a record-setting pace, Tokyo Stock Exchange data released Thursday shows, but futures trading suggests they may be ready to take a breather.
Global investors bought a net 641.4 billion yen ($4.49 billion) in Japanese equities during the week ended June 16, for a 12th straight week of net inflows.
Their total net purchases have topped 6 trillion yen, or $42 billion, making the biggest streak in comparable data since 2003.
By comparison, the rally of late 2012 to early 2013 reached 5.7 trillion yen in 18 straight weeks of net inflows.
Among the global asset managers reassessing Japanese equities is France's Amundi, which has raised its view to neutral from negative/neutral.
"We're cautious on developed-market equities overall due to the risk of a U.S. recession. But Japanese equities are relatively positive," said Hiromi Ishihara of Amundi Japan.
Ishihara pointed to factors like hopes for corporate governance reform, a resilient economy and rising prices as a sign of escaping deflation.
U.K.-based Fidelity International has taken note of an improving business environment, as headwinds such as high materials prices and supply chain constraints ease up. Fidelity's latest survey of more than 100 of analysts worldwide showed Japan as the only region where sentiment among corporate managers had improved in recent months.
"We can expect earnings improvement to drive higher share prices," said Kenji Ojida, director of research at Fidelity.
Manish Bishnoi, a portfolio manager at U.K.-based Impax Asset Management, argues that Japan, as a resource importer, has for years been at the forefront of methods to more efficiently use energy and other resources.
Many Japanese companies can capitalize on this long-term trend, Bishnoi said, as businesses come under pressure to reduce their environmental impact and operate more sustainably. Impax in March opened a new office in Tokyo and has stepped up Japan equity research.
Market players are watching buying by international investors as an indicator of the medium-term outlook for Japanese share prices.
Rie Nishihara, chief Japan equity strategist at JPMorgan Securities Japan, noted that during past rallies, overseas investors' holdings of Japanese equities improved by around 1 percentage point.
"If foreign investors view the current Japan stock rally as comparable to those, we can expect about 50 trillion yen in buying," Nishihara said.
But stock futures are starting to send signals of a possible slowdown, amid wariness over the breakneck pace of gains along with concern about the U.S. economy, which has been a key support for Japanese corporate earnings.
Foreign investors were net sellers of futures last week, to the tune of 657.2 billion yen.
The Nikkei Stock Average has racked up 10 straight weeks of gains, for a total rise of 23% through June 16. It may be showing signs of faltering. The benchmark slipped 1% Thursday to end the day at 33,264, 1% below last week's close.
"We've gone from overheating, with twice as much buying as selling, to having some days recently where selling has prevailed," said Yusuke Sakai, senior trader at T&D Asset Management.
"There's a sense that foreign money that moved in early, like hedge funds, is stepping back for a while."
Natixis Investment Managers, which had been buying Japanese equities since late 2022, in May cut its view of the market from overweight to neutral, seeing it as a good time for some profit-taking.
The European asset manager sees a risk of the Bank of Japan adjusting its yield curve control policy when the policy board meets in July.
A rise in long-term interest rates and the yen would heighten market volatility and weigh on stocks, said Mabrouk Chetouane, head of global market strategy at Natixis Investment Managers.
- June 23, 2023
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