After nearly four months of silence, with the second issuance of Japanese yen bonds by Berkshire, a subsidiary of Warren Buffett, many Japanese stock bulls now seem to be getting ready
Despite a slight decline on Tuesday, the Nikkei 225 index briefly rose to 33853.46 points in the following day's session, setting a new high in 33 years after four months. At present, the blue chip index has risen by nearly 30% this year. The weak yen, stable corporate profits, and the corporate governance reform advocated by the Tokyo Stock Exchange have all provided strong support for the stock price.
Charu Chanana, market strategist at Saxo Markets, said, "The structural potential changes in the Japanese economy continue to drive Japanese stocks higher. At the same time, the market expects that the Federal Reserve's interest rate hike cycle has come to an end, which will also give a helping hand to the Japanese stock market. The strong performance of Japanese companies in this financial reporting season is the top priority behind the recent upward trend
Part of the reason for this round of rebound in Japanese stocks is the strong financial reporting season - the yen exchange rate plummeted to a one-year low in the third quarter, boosting the profit prospects of exporters, and companies are also shifting higher costs to consumers - which was almost unimaginable before the outbreak of the epidemic.
At the same time, there are signs that the Japanese stock market is once again attracting a large influx of foreign investment as global concerns about the Fed's interest rate hike ease.
According to data from the Japan Stock Exchange, as of the week ending November 10th, foreign investors had net purchases of stocks worth 1.12 trillion yen ($7.4 billion), the largest weekly net buying volume since the week ending June 16th. From the perspective of capital flow, these overseas funds are mainly concentrated in derivatives, with a total amount of approximately 1.04 trillion yen, and an additional 78.3 billion yen is directly invested in stocks.
Throughout the year, the Japanese stock market has attracted a net inflow of 5.96 trillion yen from foreign investors, which is in stark contrast to the net outflow of 4.07 trillion yen in the same period last year.
It is worth mentioning that, similar to the rise of the Japanese stock market in the first half of this year, which was almost synchronous with Buffett's move to overweight the Japanese stock market, Berkshire's recent new actions in the Japanese market have also attracted the attention of many investors.
Last week, Buffett's Berkshire Hathaway issued yen bonds worth 122 billion yen, marking the company's second issuance of yen bonds this year. Some industry insiders also speculate that Buffett is likely to increase his bets on Japanese stocks again. And Japanese banks, insurance companies, and automakers may become the next targets of the stock god.
Survey predicts that Japanese stocks are expected to further rise next year
According to a latest survey released by industry media on Tuesday, the Nikkei 225 index's rise of over 28% this year is expected to continue until 2024- reaching 35000 points by the end of June next year, further breaking a more than 30 year high.
The estimated range of the survey conducted by stock strategists from November 10th to 20th ranges from 31143 points to 39500 points. All respondents predict that Japanese corporate profits will continue to grow, although many also predict that the positive effects of a weaker yen will gradually dissipate as the Bank of Japan's super loose stimulus policy approaches its end and the Federal Reserve's tightening cycle peaks.
The team led by Yunosuke Ikeda, Chief Stock Strategist at Nomura Securities in Tokyo, pointed out in a recent research report that there are three reasons for the continuous rise of the Japanese stock market this year: the Japanese economy is gradually getting rid of deflation; Improving corporate governance in Japan; The attractiveness of Japan as an Asian investment diversification.
Nomura believes that this situation is expected to continue in 2024. As interest rates in the United States decrease, a stronger yen may bring unfavorable factors to Japan, but the increase in profit margins caused by inflation will encourage Japanese companies to continue increasing profits in the 2024-2025 fiscal year. Nomura predicts that the Nikkei 225 index will reach 38000 points by the end of December 2024.
Masayuki Kichikawa, Chief Macro Strategist at Sumitomo Mitsui DS Asset Management in Tokyo, pointed out that commercial investment and consumer demand, especially in the service industry, have been suppressed before. Therefore, he predicts that the Nikkei 225 index will reach 39500 points in June next year and 40900 points by the end of 2024- this is the most bullish forecast in the survey.
The reason why we hold a constructive attitude is mainly because we are optimistic about nominal GDP growth, and there is still room for stock prices to reflect better earnings per share growth, "Kichikawa said.
However, Kichikawa and other respondents also stated that with the expectation that the Federal Reserve may start cutting interest rates around May next year and the Bank of Japan may withdraw from negative interest rate policies early next year, the yen may have bottomed out after hitting a low of 152 yen to the dollar earlier this month. This may mean that there will be some stagnation in the rise of the Japanese stock market in the second half of next year, and according to the median of the survey, the Nikkei 225 index will still remain at 35000 points by the end of next year.
Tony Sycamore, an analyst at British investment bank IG in Sydney, is one of the most bearish analysts on Japanese stocks. He is one of the only two analysts to predict that the Nikkei 225 index will fall from 35000 points to 33000 points in the second half of next year.
Sycamore pointed out that the 35000 point seems to be the peak level at which the rise of the Nikkei Index coincides with the timing of the Bank of Japan's cancellation of negative interest rate policies. The Nikkei 225 index still has support from the Bank of Japan falling behind the yield curve. But at some point early next year, the Bank of Japan will need to do what needs to be done, and this will not be good news for the stock market.