Special to the Tokyo Stock Exchange
The Nikkei Japanese stock index achieved broad momentum in Asian markets, after exceeding the level of 40,000 points for the first time ever at the beginning of this week’s trading.
These levels come with the support of the country’s corporate governance reform processes, and the strong valuations being conducted, which are attracting the interest of investors from around the world in the long term.
- Technology stocks, which were the main driver of the stock rise over the past year, topped the list of best performers today, including Advantest Corp.
- The Nikkei index regained its historic peak reached in 1989 last month as investors from around the world flocked to Japan’s largest companies due to improving shareholder returns, a weak yen and booming corporate profits.
What are the most prominent trends expected for the Japanese index? Can he continue the momentum with the support of domestic economic measures? How is this expressed and reflected in the country’s economic performance?
Senior financial markets analyst at Equity Group, Ahmed Azzam, said in exclusive statements to the “Eqtisad Sky News Arabia” website that the positive environment in Japanese stock markets is currently prevailing, but there is room for some correction in the near future when the Bank of Japan begins to exit its monetary policy. Facilitation.
In its last meeting, the Bank of Japan kept overnight interest rates at negative 0.1 percent at its policy meeting last January.
The bank’s governor, Kazuo Ueda, has given few hints about when he might raise interest rates for the first time since 2007.
Positive expectations
Azzam adds: The current conditions, at least this month, and until the next Bank of Japan meeting, may continue in that positive pattern, supported by several factors, which are:
- Continued gains in the chip industry amid expectations that artificial intelligence will drive a demand boom in the coming months.
- The Japanese stock market continuously benefits in this period from the rise in Japan’s GDP in dollar terms from 3.1 to 4.2 trillion dollars. This indicates that the stock market is keeping pace with broader economic growth. Stock markets move driven by economic growth.
- Investors are optimistic with corporate profits in the fourth quarter of 2023 rising by 45 percent year-on-year, in addition to cautious optimism that Japan may be able to reverse the recent deflation trend.
- Rising wages amid a tougher labor market have boosted confidence in the economy.
- The cheap Japanese yen is one of the main reasons for foreign investors’ money flowing into stock markets, also benefiting from corporate governance reforms that have boosted shareholder returns.
The Japanese yen fell by more than 18 percent in 2022 and 2023 against the dollar, including about 7 percent last year only, in part because the Bank of Japan, unlike other major central banks, maintained negative interest rates.
Warren Buffett’s endorsement of Japanese stocks last year boosted confidence in the Tokyo Stock Exchange, and concerns about a slowdown in China prompted many funds to turn to Japan.
The secret is in the gains
This is what Azzam confirms in his interview with the “Eqtisad Sky News Arabia” website, and he says: “It appears that China’s economy is declining at an accelerating pace with the collapse of the real estate market and the resulting internal declines in the economy, which has made outflows from Chinese markets move towards markets such as Japan, which led to increased liquidity in Japanese markets.”
Japanese technology sector stocks received a boost at the beginning of the week from the continued rise in shares of artificial intelligence companies.
The shares of Advantest, a manufacturer of chip testing equipment, which counts the American artificial intelligence company NVIDIA as a client, rose by 3.7 percent.
The shares of Tokyo Electron Company, which manufactures chip-making equipment, gained 2.4 percent, and the shares of the two companies strengthened, with the Nikkei rising 160 points out of a total of 198 points it increased today.
Shares of Japanese semiconductor manufacturer Renesas Electronics recorded the best performance on Monday, rising 4.9 percent.
Shares of GSR, a major manufacturer of photoresists used in chip manufacturing, rose 4.8 percent after a media report said that the state-backed Japanese investment fund intends to launch an offer this month to buy shares.
Growth rates
Azzam continued: “While the Japanese economy in general suffers from weak growth amid structural challenges that include a shrinking population, the main economic readings that were issued recently painted a positive picture for Japanese markets. Japanese capital spending rose by a much larger than expected rate of 16.4 percent in the fourth quarter, Defying the unexpected slowdown in economic growth, which gave the impression that corporate spending is resilient.”
The Japanese economy achieved growth of 1.9 percent last year, according to official data showed Thursday, but Germany nevertheless surpassed it to become the third largest economy in the world, mainly due to the sharp decline in the value of the yen.
The International Monetary Fund had expected Japan to fall to fourth place.
Japan’s nominal GDP was $4.2 trillion last year, which is equivalent to about 591 trillion yen, while Germany’s GDP was $4.4 trillion, or 4.5 trillion euros.
But Azzam adds: “While the Japanese economy officially entered the stage of technical recession in the fourth quarter of 2023, giving up its position as the third largest economy in the world to Germany. Although the central bank is still expected to raise interest rates from negative levels by April.” , it is still likely to keep monetary conditions largely accommodative, providing a positive environment for Japanese stocks compared to stock markets in major economies, which will undoubtedly face higher interest rates than Japan, which may give stock markets some positive to sideways movements in the coming period. “.
Negative scenario
Azzam touches on another negative scenario that may impose itself, saying that although the positive scenario is dominant and that the Nikkei rise to new high levels remains possible, the possible negative side must be looked at, as a bad and negative scenario for the stock markets may be coming soon for several reasons. :
- The Japanese economy has been in recession for a long period of time.
- The Bank of Japan shifted from an accommodative stance to a hawkish stance.
- The Bank of Japan has given up control of the yield curve completely.
Azzam confirms that this may cause Japanese markets to lose a large portion of their liquidity, and Japanese markets are likely to witness huge outflows. This could give Japanese stock markets some correction in April if that happens.
2024-03-05 18:01:17
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