Japan’s stock market could be set for the best returns in a generation, analysts say amid hopes of an end to years of deflation and rising interest rates. stimulating shareholders – but their ideals are not enough to convince many investors to part with their money.
Since the beginning of 2023, Tokyo brokers have welcomed waves of investors from all over the world who are interested in the equity market that they have not managed since 2018. they cannot lose.
The recent trip to Tokyo of Warren Buffett came with the revelation that he wanted to expand his Japanese portfolio. Ken Griffin’s hedge fund firm Citadel plans to reopen its Tokyo office after a 15-year hiatus.
However, at this point, most visitors leave without increasing their status. In its latest Global Fund Manager Survey, Bank of America found that respondents’ allocations to Japanese shares fell in the first two weeks of April, down five percent from the previous month. past a net 10 percent underweight positioning.
Investors are wary of a false dawn for a Tokyo stock market whose rallies have often been short-lived. While Japan’s Topix index has outperformed its European counterparts over the past decade, it has lagged behind Wall Street. And for other investors who were not immune to their exposure to currency fluctuations, the yen fell on the return.
In the first years of the “Abenomics” period between 2013 and the end of 2015, which kept the promise of a radical market reform led by the prime minister Shinzo Abe, the foreign investors about $ 250bn in Japanese equities. But in recent years, they have continued to be of poor quality and sell for the same amount.
But planners and business owners are beginning to argue that the tide is turning. The evidence presented, more than a thousand visitors told the Financial Times, is stronger than in years.
“For the large market of international investors, those who have no experience in Japan, there is the power of the norm to continue your experience. Japan is known as pain,” said Drew Edwards, the Japanese economic manager at GMO Usonian.
“But they don’t see the really interesting things that are happening. This is a generational change. People need to stop asking ‘what will change Japan?’ – is changing.
The combination of a new Bank of Japan governor and rising interest rates is leading to speculation that the days of Japan’s ultra-loose monetary policy are numbered until the fight ends. of two years with deflation. That’s good news for equities, which are struggling in an environment of falling prices across the economy.
Japanese stocks should benefit from their unpopular status among foreign currency managers, leaving little room for further expansion, according to Alain Bokobza, head of asset allocation at Société Générale.
“You can’t sell what you don’t have,” said Bokobza, adding to stable income, rising inflation and the hope of a new wave of sales. making Japanese shares more “relatable” to international investors.
There are signs that Japanese companies are becoming more responsive to investors’ wishes, as stakeholders such as Elliott Management, ValueAct and a large group of local funds urge companies to change their behavior.
Shares in Honda rose in February after the company announced plans to buy back $500 million of its own stock. Shares in Dai Nippon Printing rose nearly 40 percent in January after it was revealed that Elliott had become one of its largest shareholders.
Japan, according to Man GLG portfolio manager Stephen Harget, is now a unique example of a developing market where investors can make a big return “just by making an AGM proposal asking the escalation or sharing”.
Still, the reasons for Japan’s downward spiral, financial officials say, will persist. It is a difficult market in which to pick stocks without much knowledge, and it is an easy market for international investment committees to destroy. The recent volatility of the yen, which fell sharply last year, has given authorities reason to hold back investment for now.
The biggest driver for Japan’s revaluation, however, was a volatile exchange rate on the Tokyo Stock Exchange. At the end of last year, and with the support of the financial regulator, the bourse said that companies with a book value that is constantly falling below the other will be forced to set specific plans improve that position, and show more information. their price.
“It’s a good name and a shame, because bad Japanese companies have never been called out like this before,” said Man GLG portfolio manager Stephen Harget. “The reason we are confident that this will change the changes introduced by the TSE in the current support of the government.”
Foreign currencies did not have large holdings of low Japanese stocks despite the low cost of the book, said a Hong Kong-based bank manager at a major global asset manager.
“But that’s where we see some influencers who have great success and are putting pressure on long-term funds to follow them so that we don’t forget,” said the bank manager. “There’s a sense that this market is a spinning spring.”