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Journalism of Courage
At a time when global economies and markets are reeling under high inflation and interest rates, Japan’s stock markets are booming with stocks hitting their highest level in 33 years. What’s triggering the stock market boom in Japan?
The big rise
The broad Topix index of Japan rose almost 0.6 per cent this Tuesday, taking gains so far this year to 13.9 per cent and close to its highest level since Japan’s notorious market bubble burst in the final days of 1989. The Nikkei 225 index has gained more than 16 per cent since the start of the year and is again close to a post-bubble high, making Japan one of the hottest markets in the world.
The revival in Japan’s markets comes after multiple false dawns and years of anaemic returns that persuaded many fund managers to stay clear of Japan and its tricky corporate structures, particularly with rich returns available elsewhere.
On the other hand, India’s benchmark Sensex has barely gone up by 0.64 per cent since January 2023 to 61,729 by Friday (May 19). In the calendar year 2022, the index gained only 2.80 per cent. US equities have risen more than 10-fold even as Japan’s markets struggled to recover in the last few years.
Major reason
The Japanese bourse recently said it will request companies trading below book value to come up with capital improvement plans starting this spring. While just the latest in a long series of such directives from the TSE, corporate and market response has been surprisingly quick. Stocks rallied propelled by growing hopes of higher governance standards and more serious regard for shareholders after decades of lacklustre returns. Stock investment was also supported by upbeat earnings results released recently by Japanese companies.
Moreover, Japan’s economy emerged from recession and grew faster than expected in the first quarter as a post-COVID consumption rebound offset global headwinds, shoring up hopes for a sustained recovery. Its economy grew an annualised 1.6% in January-March, far exceeding market forecasts for a 0.7% gain and marking the first rise in three quarters.
Indian markets were rocked by the corporate governance allegations raised by US-based Hindenburg against the Adani group in February this year. While market regulator Sebi had taken action against some mutual fund houses for illegal front running and insider trading by corporates, market observers say it could be just the tip of the iceberg. There’s a case for Indian corporates and fund houses to improve governance standards, said a market observer.
Foreign inflows in Japan
While India got just $ 2 billion foreign inflows in 2023, foreign investors ploughed into Japan’s stocks and futures in the past five weeks, with net inflows during the period reaching nearly $30 billion. Foreign investors are understandably bullish over the potential for a historic rebalancing of corporate priorities.
Japan is benefiting from a realisation that Tokyo was a safe way of gaining exposure to Chinese growth but with less geopolitical risk. Indian markets witnessed a revival of foreign inflows only in the last few weeks. What has boosted the investors is that concerns such as an economic slowdown overseas or the Bank of Japan withdrawing an ultra loose monetary policy have not materialised, according to an analyst.
