With both the Nikkei 225 index and the Tokyo Composite Index reaching 33 year highs this year, the Japanese stock market has undoubtedly become a beautiful landscape in Asian and even global markets this year.
So far this year, both major Japanese benchmark stock indices have risen by over 20%, surpassing most other stock indices in Asia. Due to the depreciation of the Japanese yen against almost all major currencies, sector indices tracking Japanese automakers and electronics companies have surged by over 33%. There are indications that the Bank of Japan is not in a hurry to change its ultra loose monetary policy, which has contributed to the depreciation of the yen.
Even though the yen has rebounded since early November, the Japanese stock market remains generally stable because the yen is still relatively cheap, and corporate profits are less affected by foreign exchange fluctuations. Overseas investors have welcomed Japan's efforts to improve corporate governance.
Masashi Akutsu, Chief Equity Strategist at Bank of America Securities in Tokyo, said, "Investors outside the Asian market, such as those in the United States, Europe, and the Middle East, are also very interested in Japanese stocks. If they really believe that the Japanese economy will improve, they will raise their ratings, and then funds will flow in line with the fundamentals."
According to data from the Tokyo Stock Exchange, as of November, overseas investors have only been net sellers of Japanese stocks for three months this year, while the other eight months have shown inflows of funds.
In addition to the automotive and electronics sectors, the winners of the Japanese stock market this year also include trading companies, whose stock prices have risen after the stock god Buffett increased his holdings in the five major Japanese companies. The pharmaceutical industry, facing a series of clinical trial setbacks, is the only sector in the 33 sub indices of the Dongzheng Index that has fallen this year.
Here are some of the biggest winners and losers in the Japanese stock market this year:
Winner: Semiconductor Company
The stock price of Japanese semiconductor and panel manufacturing equipment company Screen Holdings surged 172% this year, becoming one of the best performing stocks in the Nikkei 225 index, while the stock prices of Adventure Corp. and Renesas Electronics Corp. have both doubled this year.
As TSMC considers establishing a third factory in Japan, the performance of Japanese semiconductor equipment suppliers has been closely monitored throughout the year. The Japanese government is promoting the use of additional budget to support the construction of chip infrastructure. Analysts also generally point out that Japanese semiconductor equipment suppliers are seeing signs of recovery.
Winner: Automobile manufacturer
With the yen depreciating to a one-year low of 151.91 yen per dollar in November, helping Japanese exporters achieve record profits, the automotive industry has become one of the best performing industries in the Japanese stock market this year.
The Dongzheng Automobile Index has risen by 36% so far this year, with Toyota Motor up 40% this year, and is expected to achieve its best annual performance since 2013.
Winner: Trading Company
Since reports in April this year that Buffett increased his holdings in the five major Japanese companies, stocks of these companies - Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo - have all risen by at least 35%. These five companies are the largest integrated trading companies in Japan, with a diversified long-term investment portfolio that focuses on value and cash flow.
After Berkshire issued Japanese yen bonds again in November, investors are closely monitoring which stocks Buffett will continue to buy. The Dongzheng Wholesale Trade Index has risen by over 37% since the beginning of this year, covering the five aforementioned companies.
Loser: Pharmaceutical company
After looking at so many winners in the Japanese stock market this year, let's finally take a look at the losers. The Japanese pharmaceutical industry has seen a series of bearish signals this year, and it is the only sector in the Tokyo Composite Index that has fallen this year.
Among them, Sumitomo Pharmaceutical's stock price plummeted by over 50%, becoming the stock with the largest decline in the Nikkei 225 index. In July of this year, Sumitomo Pharmaceuticals and Otsuka Pharmaceuticals jointly announced that their drug ulotaront, which they are currently developing, failed to meet the main research goals in the third phase of clinical trials for the treatment of acute schizophrenia. In addition, the stock price of Eisai Co., Ltd. also fell by 20% this year, after the company's experimental combination therapy for treating endometrial cancer failed to achieve its main goal in a late stage study.
"I think investors need to be very picky about the Japanese healthcare industry, but companies with promising post development pipelines should be the winners," said healthcare analyst Tina Banerjee.