Japan Markets Fueled by Foreign Investment

It always seems that any rallies on the Japan markets are fueled by foreign investors rather than by domestic investors. Twenty years after the Nikkei peaked in 1989, Japanese investors are still wary and apprehensive that Japan's economy has not yet bottomed out. Overseas investors, however, seem intrigued by the upcoming election and likely change of power.

Foreign investors purchased a cumulative net Y914.5bn ($9.4bn) between July 13 and July 31, according to Tokyo Stock Exchange data and figures compiled by KBC Financial Products. They bought a net Y445.23bn in the last week of July alone, the biggest weekly net purchase in more than two years. Overseas investors have been net buyers of Japanese equities since April, but July’s Y1,010bn figure was the largest in a month since May 2008.

Such foreign investors were net sellers last year. The purchases may have contributed to the Nikkei 225’s marginal outperformance at a time when stock markets have been performing strongly almost everywhere. The Nikkei has gained 16.2 percent since the July 13 election announcement, while the S&P 500 has gained 12.1 percent and the FTSE Eurofirst 300 13.8 percent.

Opinion polls indicate that the opposition Democratic Party of Japan, which seems to be backing away from its American ally, will claim victory over the Liberal Democratic Party, which has been in power for all but 11 months of the last 53 years, on the August 30 election day.

Comments

[HaavBline:]

Foriegn investors, hoping for a short term bounce similar to one happened in India earlier this year, probably don;t know that they are doing in this case.

The Japanese investors know better about their own country. If there will be a DPJ victory and regime change, they likely will fail to win a strong mandate and force their agenda. The voters confidence toward the DPJ is low and the regime may not last long.

Aug 14 11:08 AM

[Ryu Mei Co:]

As a Japanese, I know better than to invest in Japanese companies. Population is aging fast, and we do not know what will be the economic impact in the near future. Once thing is for sure, deflation! Market will contract, manufacturing facilities will move overseas or close down, real estate value fall, empty shops, high taxes, higher health care costs,........... One way to bring Japan to its glorious past is export. But we are losing our export to countries like Korea and Taiwan.

Politically, I wouldn't give too much faith on DPJ or LDP..... if Nikkei spike up like what we saw in India, then I will be very surprised, because either DPJ or LDP do not have strong political and economic policies to bring Japan out of its economic crisis. Moreover, these 2 parties have decades to solve the liquidity trap and have failed miserably.

I would suggest buying discount retailers or health care companies in Japan, like Lawson, or Daiei

Aug 17 04:30 AM

[chap08:]

Good comment from Ryu Mei Co above. I don't presume to know more about Japan, but I would add the following:

1. Demographics are fundamental to any economy. The way that the west has addressed this is through immigration. Japan does not seem able to do the same. This is probably their biggest problem.
2. Japan will need the rest of the world to start growing again. But when that happens, there will be a massive stock market boom. This is partly because valuations are at record lows. It is also because (if I may say so) the post above is typical of Japanese attitudes to their own market. Other Japanese investments, like Japanese government bonds, yield nothing and when things begin to turn, the only way is up.

Aug 17 08:42 AM