The U.S. and Japanese equity markets have been among the best performing equity markets this year. The gains in U.S. equities seem to be largely a function of domestic accounts.
Foreign investors appear to have played a larger role in the advance of Japanese shares. Weekly Ministry of Finance data shows foreign investors have bought $79 bln worth of Japanese equities this year (through mid-June).
Typically foreign investors focus on the big blue chip names. However, many of these companies have sophisticated currency hedging programs and had bought protection from their traditional nemesis, a stronger yen. Smaller companies are more flexible and are, arguably, better positioned to benefit from the weaker yen.
This great graphic, created on Bloomberg, shows the performance of the Nikkei (white line) and the Japanese over-the-counter (JASDAQ) index (yellow line). The Nikkei is price weighted, while the JASDAQ is cap-weighted. It is difficult to see it on the chart which is not normalized, but the JASDAQ has performed twice as well as the Nikkei this year. Through today's session, the Nikkei has gained about 23.4%, while the JASDAQ is up 51.6%. Admittedly most of the rise was seen in the first three months of the year, but even here in Q2, the general out-performance has held. The Nikkei is up 3.5%, while the JASDAQ is up 7.1%.
It is also interesting to note that the dividend yield of the Nikkei is 1.61% and the JASDAQ is 1.26%. The 10-year JGB yield is 0.85%. By way of comparison, the S&P 500 dividend yield is 2.15%, while the NASDAQ yield is a more modest 1.54%. The 10-year Treasury yield stands near 2.56% today.