By Bryce Coward, CFA - Gavekal Capital Blog
Recent data about foreign investment in Japanese stocks published by the Japanese Ministry of Finance reveal an outright chucking of Japanese shares to an extent never before seen. Over the last three months, foreign investors have sold a net ¥6.5tn, or roughly $58bn, of Japanese stocks. For reference, this is nearly twice the peak amount of foreign selling that took place during the 2008-2009 financial crisis.
Why is this important? Inflection points in Japanese stocks, the red line in the chart below, tend to occur when foreign investors are either too bulled up or too bearish on Japan as measured by this indicator of net foreign buying or selling of Japanese stocks. This means that when this unprecedented bout of foreign negativity on Japan finally relents, we could see a powerful move higher in Japanese stocks.