With the hot release of the TV series "Fanhua", there has been a lot of hype about "Fanhua concept stocks" in the A-share market recently. However, if we pay the deepest tribute to the magnificent era of the 1990s on a global scale, perhaps it is also our neighbor - the Japanese stock market.
Shortly after the opening of this Thursday, the Nikkei 225 index rose sharply above the 35000 point mark, marking the third consecutive day that the index has reached its highest level since 1990. The strong rise of the Nikkei 225 index reflects investors' bullish sentiment towards Japanese stocks at the beginning of the new year. The index has risen by over 28% for the entire year last year, ranking among the top in the 2023 global stock index growth chart!
In the storyline of "Flowers", in the spring of 1990, Lingzi received an invitation from Ah Bao and returned to Shanghai after ending her years of working in Japan. She partnered to open a restaurant called "Night Tokyo" that specializes in local cuisine.
The name "Night Tokyo" may not only highlight the characters' nostalgia and memories of their youth working in Japan, but also bear a distinct imprint of the times - in the early 1990s, Shanghai stood at the forefront of the times, with opportunities everywhere; Japan, on the other hand, is witnessing the final sunset before the bustling curtain call, and the night of the "lost thirty years" is about to envelop this land.
However, as the Japanese stock market continues to rise, at least in the capital market, the memories of those long glorious years in the minds of Japanese investors seem to be gradually "awakened"
The market trend shows that March 1990, which is at the same level as the current position of the Nikkei 225 Index, was the initial period when the Ministry of Finance of Japan (now the Ministry of Finance) began to limit the total amount of real estate loans and the stock price began to fall from the peak of the foam economy at the end of 1989. The Japanese stock market has been stagnant for a long time due to the impact of economic downturn and domestic and foreign financial crises, and fell to 7054 points in March 2009 after the US financial crisis. However, starting from this low point, the Nikkei 225 index has nearly doubled in about 15 years.
Why can Japanese stocks still be so strong at the beginning of the new year?
After last year's sharp rise, many industry insiders were not so optimistic about the prospects of Japanese stocks this year. On the one hand, after the crazy bull market, there is often a period of rest. On the other hand, investors generally expect the Bank of Japan to end its nearly ten-year negative interest rate policy this year, and are concerned that tightening policies may bring some pressure to the stock market.
However, the performance of the Japanese market at the beginning of the new year has clearly brought surprises to many Japanese investors. The Nikkei 225 index hit its best performance in three months last week, rising nearly 5% so far this year, while the S&P 500 index and MSCI World index remained largely unchanged during the same period. The European Stoxx 50 index fell more than 1%, and the MSCI Asia Pacific (excluding Japan) index fell nearly 4%.
In response, Nomura Orient International Securities stated in a recent report that the Japanese stock market will continue to strengthen in 2023, mainly due to the Japanese economy gradually emerging from deflation; Improved corporate governance; And the increasing attractiveness of Japan as a diversified investment target in Asia. The institution believes that the favorable factors of these fundamentals will not change soon in 2024.
The institution stated that although it is expected that the weakening of the US dollar and the strengthening of the Japanese yen will bring some resistance as US interest rates fall, Japanese companies will continue to achieve profit growth in fiscal years 2024 and 2025, given that the popularity of a culture of price hikes is driving improvements in profit margins.
In fact, behind the strong performance of the Japanese stock market at the beginning of the year, there is still a strong boost from last year's popular "daily valuation concept". For many years, the Tokyo Stock Exchange has continued to assist Japanese companies whose stock prices are below book value and their asset values are severely undervalued in developing capital improvement plans. It has called on and promoted Japanese blue chip companies to significantly increase their dividends and stock buybacks, further strengthen corporate governance capabilities, actively participate in new technology exploration and research, and engage in global competition.
Overseas investors bought a net of approximately 3 trillion yen in Japanese stock spot in 2023, attracted by positive evaluations of Japanese corporate profitability and corporate governance reform.
At the beginning of the new year, speculation of oil funds buying Japanese gaming stocks also played a role in the trend of Japanese stocks. Saudi Arabia's sovereign wealth fund, the Public Investment Fund (PIF), submitted a change report to Japan's Kanto Finance Bureau on Tuesday, showing an increase in its stake in Glorious Tecmo Holdings.
In recent years, Saudi Crown Prince Mohammad bin Salman has continuously shown a strong interest in Japanese games and animation. The report submitted in June 2023 shows that PIF not only holds 8.58% of Nintendo's shares, but also invests in Dongying and Capcom.
The impact of the earthquake on the Japanese market is actually a blessing in disguise
It is worth mentioning that when it comes to Japan at the beginning of this year, a topic that cannot be avoided is undoubtedly the 7.6 magnitude earthquake that occurred in the Neden area of Ishikawa Prefecture on January 1st. Although no one would want to see a similar natural disaster, its impact on the Japanese market at the beginning of the new year seems to be more bullish than bearish, as this may force the Bank of Japan to think more about whether it is necessary to delay monetary tightening due to this disaster.
Given the need to assess the impact of recent strong earthquakes, many investors believe that the likelihood of policy changes by the Bank of Japan at this month's policy committee meeting is already low.
Morgan Stanley MUFG Securities changed its forecast for the Bank of Japan's interest rate decision this month, and currently expects the Bank of Japan to temporarily maintain its current monetary policy unchanged, partly because the Bank of Japan must assess the negative impact of the Peninsular disaster on the economy.
Daisuke Karakama, Chief Market Economist at Mizuho Bank, said, "Although there must be a considerable number of foreign investors expecting negative interest rates to end in January, it is almost certain that the Bank of Japan will not take action this month in the current situation. If negative interest rates are not cancelled in January, the end of negative interest rates in the first half of 2024 will also become unknown."
If the plan of the Bank of Japan to end negative interest rates is postponed, it may also mean that the weakness of the yen will continue for the foreign exchange market. From the performance of the foreign exchange market since the beginning of the year, the Japanese yen has once again led the G10 currency down, just like in the past two years. The depreciation of the Japanese yen is undoubtedly good news for many Japanese export-oriented enterprises.
"We believe that the Japanese stock market may continue to remain attractive, although returns may not be as strong as in 2023," said Charu Chanana, market strategist at Saxo Capital Markets
Chanana stated that potential obstacles faced by the Japanese stock market this year include expectations of the Bank of Japan adjusting its ultra loose monetary policy and potential appreciation of the yen. But she said that after a strong earthquake and weak economic data on January 1st, coupled with the uncertainty of the Fed's interest rate cut prospects, "both of these obstacles seem to have been postponed.".
According to a recent survey conducted by local Japanese media on market participants (with 68 respondents), the average high predicted value of the Nikkei 225 index in 2024 is 36971 points, and the average low predicted value is 35990 points. Twenty percent of respondents predict that the Nikkei 225 index will hit its all-time high of 38915 points, set on December 29, 1989.
Masashi Akutsu, Chief Japan Equity Strategist at Bank of America, believes that the Japanese stock market is set to soar 13% this year, reaching a historic high, surpassing the peak set 35 years ago. He said that the Japanese stock market is still undervalued, and the resilient Japanese economy and continuously improving corporate profits should drive the Japanese stock market further higher.