Japanese stocks reach a 30-year high

Japan’s Nikkei 225 stockmarket index has broken through the 30,000-point level for the first time since 1990.

After several decades of “false dawns” the sun is finally rising on Japanese shares, says Ian Cowie on Interactive Investor. The Nikkei 225 index has broken through the 30,000-point level for the first time since 1990. Roaring Japanese markets had dominated financial headlines for much of the 1980s. When “the music stopped” few could have predicted that it would be such a long climb back. Sadly, “quite a few long-term investors in the world’s third-largest economy” didn’t live to see this day. 

A protracted post-bubble hangover

The “lost decades” after the stockmarket bubble’s implosion have turned Japanese equities into the “red-headed stepchild of global asset allocation”, says Udith Sikand for Gavekal Research. There have been moments of hope: foreign investors poured $240bn into the local market after former prime minister Shinzo Abe’s second term began in 2012. But they soon became disillusioned, withdrawing all of those funds by the time his premiership ended last summer. They shouldn’t have: corporate reforms under Abe have led to “structural improvements in Japan Inc.’s profitability”. 

Don’t let the Nikkei fanfare distract from Japan’s economic problems, says The Japan Times. They range from “stunted” productivity to an overdependence on “old economy” industries. The latest rally may not have much further to run. The market may have broken through the 30,000 mark, but it remains well short of 38,957, the all-time high it reached in 1989. “Only in Japan” would analysts say things had gone too far when the market is trading “where it was 30 years ago”, Nicholas Smith of CLSA told Eustance Huang on CNBC. Few foreign investors have noticed, but local shares have been performing strongly for a while: the Topix stock benchmark has gained 125% since late 2012, outperforming many other major markets. The Nikkei 225 has soared by more than 10% since 1 January, compared with a 3.4% gain in the pan-European Stoxx 600 and a 4.2% rise on the S&P 500. 

The Nikkei exorcises its demons

While 30,000 may be an arbitrary number, the “historic resonance of 1990 is powerful”, says Leo Lewis in the Financial Times. Japanese stocks have long been held back by a folk memory of the “deranged…bubble era”. In the years since, local investors could be expected to sell whenever shares rallied too much for fear of being burned again. The fact that the Nikkei has finally broken above 30,000 and stayed there suggests it is no longer overshadowed by its “manic alter-ego of 1989”. 

The world has changed immensely in the three decades since the Nikkei was last at 30,000, says Graham Smith on fidelity.co.uk. Japan was then considered America’s “number-one” challenger; Chinese markets were “well off the radar for most investors”. Once eye-watering valuations have also come down, from as high as 75 times earnings in the early 1990s to 25 today –  “a small discount” to global peers. The market’s stable of carmakers, electronics firms and banks is well placed to enjoy a profit surge as global recovery takes hold. “The stars seem to be aligning for Japan.”

Recommended

Early repayment charges: should you abandon your fixed-rate mortgage for a new deal now?
Mortgages

Early repayment charges: should you abandon your fixed-rate mortgage for a new deal now?

Increasing numbers of homeowners are paying an early repayment charge to leave their fixed-rate mortgage deal early, and lock in a new deal now. Shoul…
30 Sep 2022
Energy meter reading day: why you need submit your gas and electricity readings now
Personal finance

Energy meter reading day: why you need submit your gas and electricity readings now

Energy meter reading day - you need to submit your gas and electricity readings as soon as possible ahead of the October energy price increase
30 Sep 2022
Should you fix your mortgage? Here are the best rates available now
Mortgages

Should you fix your mortgage? Here are the best rates available now

Rising interest rates look set to spring a nasty surprise on millions of homeowners next year. You need to take steps today to protect yourself from a…
30 Sep 2022
Why the Bank of England intervened in the bond market
Government bonds

Why the Bank of England intervened in the bond market

A sudden crisis for pension funds exposed to rapidly rising bond yields meant the Bank of England had to act. Cris Sholto Heaton looks at the lessons …
30 Sep 2022

Most Popular

Why everyone is over-reacting to the mini-Budget
Budget

Why everyone is over-reacting to the mini-Budget

Most analyses of the chancellor’s mini-Budget speech have failed to grasp its purpose and significance, says Max King
29 Sep 2022
How the end of cheap money could spark a house price crash
House prices

How the end of cheap money could spark a house price crash

Rock bottom interest rates drove property prices to unaffordable levels. But with rates set to climb and cheap money off the table, we could see house…
28 Sep 2022
Why UK firms should start buying French companies
UK stockmarkets

Why UK firms should start buying French companies

The French are on a buying spree, snapping up British companies. We should turn the tables, says Matthew Lynn, and start buying French companies. Here…
28 Sep 2022