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Market Update 2024

Feb: Nikkei hits record high above 40000​

The Nikkei index has surged over 15% this year, outperforming major indices like the S&P 500. This growth is driven by economic shifts, undervaluation, global interest, capital reallocations, and government initiatives. Below are the key Reasons for Nikkei's Rise:

  • Economic Shifts:
    • Deflation to Inflation: Japan’s prolonged deflation led to economic stagnation and a cautious investment culture. The introduction of Abenomics in 2013 reversed deflation, achieving a stable 2% inflation rate, prompting a shift from cash hoarding to equities.
  • Undervalued Stocks:
    • Cash Reserves: Japanese companies have held large cash reserves, leading to low price-to-book (PB) ratios and undervaluation.
    • Corporate Reforms: Recent initiatives encourage companies to increase shareholder returns and reduce cross-shareholdings, helping unlock their intrinsic value.
  • Global Interest:
    • Warren Buffett’s Investment: His $6 billion investment in 2020 signaled confidence in Japanese stocks, altering global investor sentiment and reducing the professional risk associated with investing in Japan.
    • Foreign Participation: Increased foreign investor interest and activity have driven demand for Japanese stocks, as seen in rising fund flows and account openings.
  • Capital Reallocation:
    • Outflow from China and Hong Kong: Capital leaving these markets seeks stable alternatives in Asia. Japan’s developed market infrastructure supports various investment strategies, making it a preferred destination for reallocated funds.
  • Government Initiatives:
    • NISA Expansion: The government expanded the NISA (Nippon Individual Savings Account) to encourage local investment by offering tax advantages, mitigating inflation risks, and fostering a shift from cash savings to equities.
    • Increased Local Interest: Rising Google search trends on investment-related terms indicate a growing interest among Japanese citizens in stock investment.

Investment Strategies

  • ETFs: Opt for low-fee Japan-listed ETFs like ETF 1306 (TOPIX) and ETF 1321 (Nikkei 225) or US-listed alternatives for broader exposure.
  • Direct Investment: Platforms like Interactive Brokers offer direct access to Japanese stocks with flexible trading options.
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