Economies all over the world are beginning to recover. Asia seems to be leading the world. For Japan’s Nikkei 225 in particular, reaching a major milestone, topping 30,000, a first in over 3 decades.
For the first time since 1990, Japan’s Nikkei 225 climbed above 30,000. On Monday, after a 1.9% rise, Nikkei closed at 30,084.15. This close dates back to late 1989, just before the Japanese market crash. Then, the market rose as high as $38,000 before losing more than half in three years.
On the face of it, it has been a sign that government intervention has worked. Japan, being one of the largest economies has seen its government intervene to keep the economy afloat. But unlike the US and Europe, Japan is hesitant of cash handouts which have been viewed as short-term fixes. Long term, have been company and stock bailouts. Japan has rather focused on stimulating the economies by boosting companies and the market. This has given the stock market high optimism and rekindled investor confidence. In terms of GDP growth, the government has reported a 12.7% growth in its preliminary report. This was higher than economists’ median estimate of 9.5%.
US Stimulus Role in Japanese Market
The much-discussed stimulus plan has also been a major factor. Unlike Europe which overlooks Japan’s stock market, US investors have their hands deep in that market. In fact, most experts believe that the market has long been undervalued. Notably, Nikkei 225 has been outperforming S&P 500 by as much as double in recent weeks.
Big investors such as Warren Buffett have taken huge bets. Late last year, Buffett invested around $6B in five Japanese companies. Such moves have seen other foreign investors flock into the Japanese market and trigger a bullish wave. With the stimulus package all but confirmed, foreign investment into the market is expected to continue rising.
Japan’s Nikkei 225 Set for Price Discovery
JPMorgan Asset Management’s Shogo Maekawa stated that there is a new wave of investments and foreigners who are reevaluating Japanese stock.
He added:
“We’re in a globally risk-on environment, but the particular strength in Japanese equities speaks to an appetite for stocks sensitive to business cycles and value stocks.”
Exports are also a major contributor to the new bullish outlook. Japan is heavily reliant on export, the pandemic was a major slap for it as borders closed down. With the same opening up, a vaccine ready, and borders expected to completely open and exports begin, Japan will be a big winner bringing in new revenue to boost the economy.
In the months to come, Japan’s Nikkei 225 could hit its top of 38,000, as the current price is just 30% below this top. With every indicator pointing to this being surpassed, after this, the stock will go into price discovery.
Kiguru is a fine writer with a preference for innovation, finance, and the convergence of the two. A firm adherent to the groundbreaking capability of cryptographic forms of money and the blockchain. When not in his office, he is tuned in to Nas, Eminem, and The Beatles.
