The Japanese stock market is hitting new heights. The Nikkei 225, a significant index for the Japanese equity market, recently broke a record set 37 years ago and continued its upward trajectory. It crossed the 40,000 points threshold for the first time during morning trading on Monday.
Technology Stocks Driving the Surge
The surge in the Nikkei 225 is largely attributed to the performance of tech shares. Tokyo Electron, a company that manufactures semiconductors and chip-making equipment, has seen its shares increase by more than 140% in the past year. This performance has been instrumental in making the Nikkei 225 Asia’s best-performing market in 2023, with a gain exceeding 25%.
The investing world has taken notice. Influential investors like Berkshire Hathaway CEO, Warren Buffett, have increased their holdings in major Japanese trading houses. Global giants like BlackRock, the world’s largest asset manager, and Amundi Asset Management, the largest money manager in Europe, are expecting earnings growth and corporate changes to fuel a continued rally, according to Bloomberg.
Strong Performance and Weaker Yen Boosting Optimism
There are several reasons why investors are optimistic about the Japanese market. Earnings for the last quarter of 2023 were 45% higher year-on-year, reports Goldman Sachs. Furthermore, the weakening yen is making Japanese exports more affordable, while increasing the value of profits repatriated from overseas.
Improvements in corporate governance are also playing a role. The stock exchange is urging the country’s vast conglomerates, known as keiretsu, to streamline their organizational structures. It is also pushing companies to disclose plans to enhance their capital efficiency.
The Rise of the Nikkei: More Bullish than Overbought?
The Nikkei’s rise, according to experts, is far from over. Charu Chanana, the head of FX strategy at Saxo, stated to Bloomberg that the Nikkei surpassing 40,000 “is likely to be a more bullish signal rather than fueling any concerns of Japanese stocks being overbought.”
- Tokyo Electron shares have soared by over 140% in the past year.
- The Nikkei was Asia’s best-performing market in 2023, with a gain of over 25%.
- Foreign capital, including investments by Warren Buffett and BlackRock, is flowing into the Japanese market.
- Earnings for the last quarter of 2023 were 45% higher than the previous year.
- Improvements in corporate governance are being encouraged, including streamlining of keiretsu.
Further information can be found on the Bloomberg website.
