19 Mar Japanese stock market proves its strength and opens doors to overseas investment
After years of false starts, the Japanese stock market hit a really important milestone in February 2021.
The Nikkei 225 index smashed through the 30,000-point level for the first time since way back in 1990. This 30 year high for the stock market is proof that the economic stars are aligning for Japan, regardless of the pandemic.
It’s taken 30 years for the Japanese stock market to recover
Japanese stock markets were last roaring ahead in the 1980s. And when the bubble burst, none of us thought that it would take quite so long to get back on top. This is despite the fact that Japan is the third biggest economy in the world.
Following the stock market’s fall, Japanese equities became extremely unpopular with overseas investors. In 2012, when then President Shinzo Abe unveiled his fiscal stimulus plans, foreign investment began to increase. However, many of these investors became disillusioned with Abenomics and withdrew their money by the end of his term.
We can say with authority that those who withdrew categorically made the wrong investment move. Abenomics led to major structural corporate reforms which have hugely boosted Japan’s profitability for investors.
Compared with other economies Japan is looking strong
There is a word of warning from the media, with The Japan Times cautioning over economic challenges still facing the country. These include far lower levels of productivity due to the pandemic and far too much reliance on traditional old-economy industries.
It’s also a fact that while the stock market has broken through 30,000, it’s still nearly 9,000 points off the highest level reached in 1989. While relatively few overseas investors have woken up to the new Japan, local shares have been doing well for a while.
For example, since the latter part of 2012, the Topix stock benchmark has gained 125%. This means it has outperformed most other markets. Since 1 January 2012, the Nikkei 225 has risen by 10%, particularly impressive compared to the 4.2% increase on the S&P500 and 3.4% increase on the Stoxx Europe 600.
Overseas investor confidence in Japanese equities is rising
The Nikkei reaching 30,000 is important because it is changing attitudes about investing in Japanese equity. For far too long, the disaster of the bubble bursting in 1990 has held investors back. The fear of losing vast amounts again means that investors are too often choosing to sell if it starts looking too risky.
But not only has the Japanese stock market reached a high we haven’t seen in decades, it is stabilising there. This will help to allay fears that the economy is heading for another disastrous fall and boost investor interest in Japan.
When the index was last over 30,000 the world was a very different place. Back in the 1980s, Japan was viewed by the world as the most significant economic challenger to the might of the United States. At the time, Chinese markets were not even on the radar of most investors. Now, as the global economic recovery from the impact of the pandemic begins to roll out, Japan is well placed to enjoy a surge in investment popularity.
The fiscal stars align for Japan post COVID-19
Amid the tumult of 2020 and the shifting stance of the world’s Governments in their attempts to get a grip on the crisis, Japan’s recovery has gone almost under the radar. The economic comeback may have been quiet, but it looks as though it’s here to stay.
The firmly embedded attitudes towards Japan from investors may take a while to wear off. Assumptions over its aging population, deflation, stuck-in-the-mud corporate attitude and sluggish pace will gradually fall away.
So, while the investment press continues to largely ignore Japan aside from a few articles about corporate reform, savvy investors will wake up to its potential. The truth is, comparing the economic trajectory in Japan with other countries shows very clearly that it is far from a poor investment choice.
Japan is firmly on the path of economic and financial improvement and reform. There is no doubt that it will only get better and continue to thrive. Do we feel the same level of optimism when we look at other economies right now? Many of us don’t.
We live in uncertain times and the outlook for investors is tricky. Keeping an eye on Japanese investment opportunities, however, will only pay off.