(News Bulletin 247) – The Nikkei 225 has made good progress since the beginning of the year, as strategists begin to recommend that foreign investors take a better look at the Japanese market, which has been neglected until now.

The slightest movement and movement of Warren Buffet is scrutinized carefully, given the success of the famous American investor. However, in April, “the oracle of Omaha”, as it is nicknamed, went to a country somewhat fallen into oblivion by foreign investors: Japan.

This gave a welcome spotlight to the Japanese market. Especially as Warren Buffet told the famous Japanese daily Nikkei that he intended to increase his investments in Japanese equities, adding that he was “very proud” of his positions in “sogo sosha”. These companies are trading houses that serve as intermediaries in exports and imports. Warren Buffett has invested in five of them (Mitsubishi, Sumitomo, Marubeni, Itochu and Mitsui).

Warren Bufffett’s statements caused “an unexpected excitement” around Japan, John Plassard de Mirabaud noted in a note.

The billionaire is not the only one looking towards the land of the Rising Sun. Ken Griffin, one of the world’s most famous hedge fund managers, has decided to open an office in Tokyo for his investment firm Citadel, 15 years after leaving the country following the financial crisis, according to Nikkei.

>> Access our exclusive graphic analyses, and enter into the confidence of the Trading Portfolio

The Tokyo Stock Exchange is having a good vintage

Beyond the expressions of interest from these two great financial personalities, the Tokyo Stock Exchange is having an excellent 2023 vintage. The Tokyo Stock Exchange’s flagship index, the Nikkei 225, passed the 30,000 point mark this week , and on Friday reached its highest level since 1990 . Since the start of the year, the Nikkei 225 has gained 17%

, i.e. more than the 15% of the CAC 40, the 16% of the DAX 40, the 8.5% of the S&P 500, and, certainly, less than the 20.4% of the Nasdaq, which benefits from the fervor around the groups of tech and artificial intelligence. Japan’s other major index, the Topix, also hit its highest level since 1990 this week.

Japanese equities are benefiting from a certain upturn in confidence, which can be explained by the good performance of the Japanese economy. Gross domestic product grew by 0.4% quarter on quarter over the first three months of the year, benefiting in particular from a return to tourism, since the reopening, in October, of the archipelago to foreign travellers. China’s recovery is also favourable. Inflation remains relatively contained at around 3%, while growth is anticipated by the Bank of Japan at 1.4% this year, i.e. a more attractive level than that of the United States, expected at less than 1% by the reinsurer Swiss Re.

The Japanese economy is emerging from a long period where deflation represented a permanent threat and seems to be on the sidelines of the “stagflation” that is looming in Europe and the United States. UBS estimates that Japan could even, in the long term, become a “normal economy” with annual growth of 2-3% per year, rather than its more traditional 1%. The Bank of Japan, the country’s central bank, recently changed its governor, with Kazuo Ueda, perceived according toNikkei

, as less close to the Japanese executive than its predecessor, and therefore more independent. This can be an encouraging signal for investors. UBS considers that the Bank of Japan could thus gradually exit from its ultra-accommodative monetary policy, which would mark the total end of the fight against deflation.

Structural changes

Is this enough for foreign market operators to take a frank interest in this neglected market? As John Plassard pointed out in April, Japan has tended to remain “out of the sight of many investors”. The latest Bank of America opinion poll of fund managers, published this week, shows in any case that these same managers continue to clearly underweight Japanese equities. But the situation could change, with many structural changes in the country. Known for a certain prudence in risk management and their return to shareholders, Japanese listed companies are beginning to return more cash to their shareholders. According to forecasts by Jefferies mentioned by theWall Street Journal

the total shareholder return package (dividends and share buybacks) could reach a record 27 trillion yen (180 billion euros) in fiscal year 2023 for all the companies making up the Topix index. THE Wall Street Journal

also explains that the efforts launched by the late former Japanese Prime Minister Shinzo Abe to improve corporate governance – one of the reservations of foreign investors – are bearing fruit.

In a note Lazard asset management also underlines the “positive” proposals of the Tokyo Stock Exchange, issued in January, to force listed companies to accelerate their initiatives in terms of governance, under penalty of delisting.

Under the proposals, the Tokyo Stock Exchange would “require management and the board of directors to correctly identify the cost of capital and the efficiency of capital of the company”, especially for companies that have always been listed. below their book value, underlines the asset manager. “We believe this ‘comply or explain’ directive will put additional pressure on Japanese management teams to address capital inefficiency issues,” Lazard Asset Management said. Activist investors are also interested in Japanese listed companies, such as Elliott Management, which recently acquired a position in printer specialist Dai Nippon printing, notes the

Financial Times.

A turn not to be missed

“Domestic and foreign investors are favorable on Japan relative to the United States and Europe because it does not face an imminent recession and its valuations are very low,” strategist John Vail told Bloomberg. Chief Global Officer at Nikko Asset Management Co.

“We have entered a two to three year bull market period for Japan, which has legs,” also told the news agency, Neil Newman, deputy director of Japan research at Macquarie Capital. Securities.

Goldman Sachs strategists, quoted by CNBC in an article published on Tuesday, see a significant number of reasons to be bullish on Japanese stocks. “We note strong fundamentals relative to overseas market stocks, and also believe that expectations for structural change/reform could push Japanese stocks higher,” they said.

Also quoted by CNBC, Frank Benzimra and Tsutomu Saito, strategists at Societe Generale, judge them that “foreign investors are back”, underlining the robustness of the country’s domestic demand and the return to the shareholder which is improving. According to Bloomberg, which references data from the Tokyo Stock Exchange, Japanese investors bought $15.8 billion worth of Japanese stocks in April, the highest level since October 2017. Drew Edwards, portfolio manager at GMO Usonian, quoted by theFinancialTimes

warns that investors who tend to overlook Japan risk missing out on a major shift.

“It’s about a generational change. People have to stop wondering what it will take to change Japan, because it is changing,” he said.