Japanese stocks have had a poor start to the year, but we’re as bullish as ever

Japan didn’t have a particularly nice start to the year (although regular readers will be pleased to note they made as much on their gold mining shares as they might have lost on their Japanese equities – there is something in this insurance idea).

However, we remain as bullish as ever.

We know there is more quantitative easing (QE) coming. We know that Japan is one of the few places where earnings momentum is on the up. We know that stocks remain good value. How can there not be value in a country where fully 50% of the stocks listed on the main index (TOPIX) are not covered by a single analyst? Quite.

But there is one more thing that is making us come over even more positive than usual – NISAs (‘Nippon ISAs’). Jonthan Allum of SMBC Nikko has looked at who has been buying stocks over the last month (as dim witted foreigners have been dumping them).

The answer is Japanese individuals. Net individual buying in January hit an all-time record of ¥1.427trn. That, says Allum, could be just down to  an admirable tendency to buy on weakness. But it could also be down to the fact that since the tax free saving vehicles were introduced 2.75 million people have opened accounts, and 470,000 of those have already begun to invest. How much? According to the Nikkei newspaper, not far off ¥300bn already. That’s not a bad start at all.

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  • js

    Like you, I’ve been a big fan of Japan over recent years and I’ve had very profitable exposure to it through your excellent tip of Baillie Gifford Shin Nippon.

    But if you look at Tokyo’s Cape, a measure you bang on about week after week (beg your pardon – a measure you’ve referred to several times in the past) do you see any cause for concern? According to my source, the Cape for TSE is 30.3 currently. Or is the ‘earnings’ part of the equation set to rise so much that the Cape will drop?

    Also, I get the argument that Mr & Mrs Watanabe’s new Isa account could drive the market higher, but doesn’t your contrarian instinct make you think that if the market’s getting so popular maybe it’s time to move on?

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