As the Nikkei 225 index opened significantly higher on Friday (January 19th) and once again reached the 36000 point mark, the booming market of Japanese stocks since the beginning of the year has clearly become a major highlight of global investor focus.
A survey conducted by Bank of America this month showed that investor enthusiasm for Japanese stocks is dominant in the Asian region -59% of Asian fund managers hold an over allocation attitude towards Japanese stocks, far ahead of the Indian stock market. The basis for this optimistic sentiment lies in the fact that the two major benchmark indices of the Japanese stock market, the Nikkei 225 Index and the Tokyo Composite Index, have both reached their highest levels in 34 years, and the continued weakness of the yen has also contributed to the rise of the Japanese stock market.
However, amidst the positive feedback from market insiders, some less mainstream voices have also begun to quietly emerge this week. Industry institutions such as HSBC and Societe Generale are becoming representatives among them. The strategists of these investment banks believe that the Japanese market has already surged, and investors should start profiteering now
Japanese stocks may be "too high to be cold"?
"I will be cautious in the current Japanese market," said Herald van der Linde, Asia Equity Strategy Director at HSBC in Hong Kong
He pointed out that everyone was fully prepared for the rise of Japanese stocks, and everyone bought stocks for it, but most of the good news may have been included in the price. The agency rated the Japanese stock market as "underweight".
Some technical indicators seem to support this viewpoint. The East China Composite Index has indeed shown signs of overheating, with its relative strength index (RSI) recently reaching its highest level since May. The last time the Dongzheng Index broke through the overbought threshold of the RSI indicator was in September last year, when the market fell by about 9%. Some market observers therefore suggest that the Japanese stock market may have become overly crowded.
HSBC expects the East Composite Index to close at 2460 points by the end of this year, a decrease of 1.3% from its current level.
Even more pessimistic than HSBC's view is that of Societe Generale in France. The bank predicts that by the end of June, the Nikkei 225 index will drop to 32500 points, a decrease of approximately 8% compared to the current level.
M& located in Hong Kong, China; Michael Dyer, Director of Multi Asset Strategy at G Investment Company, also pointed out, "There have been many positive factors priced recently. We have locked in some profits. Profit taking is becoming increasingly a consensus trading."
His viewpoint was endorsed by Kelvin Leung, portfolio manager of Robeco Hong Kong branch. He said, "In my opinion, the recent uptrend is still quite momentum driven and quite overheated. If you observe the breadth of the market, the uptrend is driven by large cap stocks, technology stocks, and automotive stocks. I think the market breadth is still quite narrow."
In fact, according to statistics released by the Tokyo Stock Exchange on Thursday, as the Nikkei index surged 6% last Sunday and continued to hit a new high since 1990, a large number of Japanese retail investors have chosen to "put their bags in the bag" - Japanese retail investors set a new record for net sales in a single week since the end of 2013.
Will the future trend of the Japanese yen bring uncertainty?
In addition to potential risks in terms of technology and position, the volatility of the Japanese yen has also become another concern for Japanese stock investors. The depreciation trend of the Japanese yen in recent years has been driven by the country's loose policy of negative interest rates. Although the 7.6 magnitude earthquake that occurred on New Year's Day temporarily delayed industry expectations for a rate hike in Japan this year, this trend may not be completely reversed.
If the Bank of Japan really raises interest rates this year, its policy direction is expected to be opposite to that of the Federal Reserve, which will inevitably weaken the strength of the US dollar against the Japanese yen.
Frank Benzimra, Head of Asian Equity Strategy at Societe Generale, said that this is also one of the reasons why the bank has decided to reduce the allocation ratio of Japanese stocks from 15% in November to 8%, as the excessive volatility of the yen against the US dollar "reduces the attractiveness of risk returns.".
Benzimra said, "At a time when the Federal Reserve expects to adopt a loose policy and the Bank of Japan expects to shift towards tightening, we must recognize some risks."
JPMorgan Chase Private Bank is also closely monitoring the risks of yen appreciation on its investments.
"A large part of the rise we see in Japanese stocks is due to the depreciation of the yen. Of course, this is not the whole story, but it is a key driving factor. Looking ahead, considering that the yen is already very cheap compared to the US dollar, we do expect the yen to appreciate, although it is unlikely to appreciate significantly in the short term," said Alexander Wolf, Asia Investment Strategy Director at JPMorgan Private Bank.
Is the long-term trend of Japanese stocks still positive?
Of course, while facing certain risks in the short term, many industry insiders are still optimistic about the long-term trend of Japanese stocks.
The President of the Japan Securities Dealers Association, Toshio Morita, said that the Nikkei 225 index may rise between 42000 and 43000 points this year. Financial institutions in Japan have been increasing their staff, with a focus on recruiting experienced traders in the interest rate hike environment.
Bullish investors still highlighted Japan's governance reform policies aimed at increasing company valuations, including the capital improvement directive issued by the Tokyo Stock Exchange for companies with stock prices below book value. These investment enthusiasm around the concept of "daily special evaluation" has boosted the share prices of old undervalued blue chip companies such as Daiwa Securities - this week's share price of the Japanese old securities firm was higher than its book value for the first time in six years.
In a January survey by Bank of America, more than a quarter of respondents expected the daily stock return to reach double digits in the next 12 months, and the proportion of respondents holding this optimistic expectation further increased from one sixth in the December survey.
Kiyoshi Ishigane, Chief Fund Manager of Mitsubishi UFJ Asset Management, stated that although he has reduced his investment in Japanese stocks, he remains optimistic about the future.
He said, "I have recently reduced the allocation proportion of Japanese stocks and made some profits. I also expect that the yield of 10-year treasury bond bonds will rise again, which may drag down Japanese stocks. However, the fundamentals of Japanese stocks have not changed much, so I still look at Japanese stocks in the long run."