18 March$Nikkei 225(.N225.JP)$Once again forcing the close to 40,000 points, the market is focused on the Bank of Japan to announce a new interest rate policy after the March 19 meeting, including the end of the yield curve control (YCC) policy, which is expected to start raising rates in April. Japan will move away from negative interest rate policy and maintain zero interest rates for a long time as the Japanese economy improves.
What changes will the Bank of Japan's message bring to the yen and the Japanese stock market?
Before discussing this point, we need to understand that we first understand the upswing of the Japanese stock market and the current situation facing the Japanese economy.
The Nikkei index crossed the 40,000 mark this year to reach a high of 40472 points, the highest level in the history of the Japanese stock market and a high of the index since 1989. Economically, the index crossing this mark also represents the Japanese economy's 30-year exit from a quandary, which has also attracted global investor attention. In early March 2024, the total market value of Japanese stocks listed on the Japanese stock exchange jumped to over ¥1 trillion, and rightfully ranked third in the world, following in the footsteps of the United States and China.
An analysis of the reasons behind the rally in Japanese stocks and a little talk about the predictions for the future
The strong performance of the Japanese stock market was supported by the strong performance of the “day appreciation concept”. Over the years, the Tokyo Stock Exchange continues to help companies whose stock prices are below book value and severely undervalued asset value develop capital improvement programs, and urge and encourage Japanese blue-chip companies to increase dividends and share buybacks, further strengthen corporate governance, and actively engage in the exploration of new technologies This is also the origin of the concept of “day-specific valuation”, such as research and globalisation competition.
When talking about Japanese stocks, you have to mention “stock god” Buffett. On February 24, Burkhill Hasawi, a subsidiary of Buffett, released its latest financial statements and issued an annual letter to shareholders, which discussed the Japanese company extensively and stated that Berkshire would maintain its investments in five Japanese businesses indefinitely. Buffett's five largest Japanese retailers in Ito-Tadata, Marukuoka, Mitsubishi, Mitsui Properties and Sumitomo will date back to 2020. Since then, he has steadily increased his shareholding in five Japanese business companies, which by the end of June 2023 had increased to more than 8.5%, now rising to 9%.
In fact, in addition to the shares invested in by Buffett, the reform measures of many Japanese companies have worked. Many Japanese companies have experienced a sharp downward trend in net debt levels over the years, coupled with low cost controls, and corporate profitability and cash flow have attracted investors' attention. From a macroeconomic point of view, Japan's economy is also likely to undergo significant changes, with a chance of ending the shrinking problem. For example, in the previous Japanese “spring battle,” unions struggled to achieve an average 5.28% increase in total wages, paving the way for the Bank of Japan to end its negative interest rate policy. The market widely believes that the Bank of Japan will end years of negative interest rate policy, guiding Japanese interest rate normalization.
Normalization of Japanese interest rates is more favorable
Normalization of interest rates is the catalyst for further increases in the Japanese stock market. When many investors first heard about the Bank of Japan's rate hike, they began to think that local liquidity in Japan would narrow and the yen would rise, causing the Japanese stock market to fall. Short-line vibrations are possible for individuals to detect in the wake of speculative hype, but there is little chance of this logic being released in the long run. Since interest rate normalization also means that the local economy is gradually improving and will be beneficial to the profitability of local businesses under fundamental support; the optimistic assumption is that taxes are more likely to help with local government debt problems and even stimulate local population birth rate problems as a result of improved economic activity Change. In addition, changes in interest rate policy by the Bank of Japan will lead to the appreciation of the yen, but will also encourage the flow of international capital into the Japanese market, which will benefit the economic performance. The best example is the interest rate hike cycle in the United States at the end of 2015.
There will be a lot of changes for the Japanese stock market, with the loss of several years directly due to international investors investing in the Japanese stock market, and the US dollar's session activity will need to be addressed. However, it is very likely that interest rate policy will be concluded this year, and the possibility of a US slowdown is still in store. The event will be followed by a rally in the wake of the Japanese stock market and the rise of the Japanese stock market. This visit and the way in which Futu invested early in the exhibition has not changed.
Choosing a Japanese ETF
Under the assumption that the Japanese yen and the stock market double, the proposed 2024 Japanese equity ETF will be an “unhedged” Japanese equity ETF as an entry-level option.
Notes on Hong Kong Listing$CSOP Nikkei 225 Index ETF(03153.HK)$
Watch for US stocks$iShares MSCI Japan ETF(EWJ.US)$
The author is a licensee of the Securities and Exchange Commission and its affiliates do not have a financial interest in the proposed issuer of shares mentioned above
Senior Strategist at Futu Securities
Tam Chi Lok
