Inbound? God of Investment? Is the 8 consecutive rise in stock prices genuine?

On the 18th, the Nikkei Stock Average rose for the eighth consecutive business day, setting a new high at the closing price. Is it the inbound effect, the impact of "low PBR reform", or the aftermath of the visit to Japan of Warren Buffett, who is also known as the "God of Investment"? While the market has seen a wave of positive factors and hopes for further gains, others have questioned its sustainability. We covered the current state of the market, where various perspectives intersect. (Economic Affairs Reporter, Koki Nishizono)

Which sectors drove stock price gains?

On the Tokyo stock market on the 18th, the Nikkei Stock Average rose to 2,8658.83 yen. Since April 4, the price has increased for 7 consecutive business days.

Stock prices continued to rise this year, but since March 3, the price has fallen significantly due to the spread of financial instability in Europe and the United States.

However, after bottoming out one month ago on March 10, the upward trend continued again, and the Nikkei Stock Average rose to 1,3 yen for the month ending April 20.

Which sectors led the rise in stock prices during this period?

In the month to April 4, the TOPIX = TSE Stock Price Index rose 20.1%, but the index broken down by industry shows a significant increase of 1700.4% for "wholesale", 20% for "banks", 1.5% for "insurance", and 7% for "securities".

So why were these stocks bought?

First, "wholesale". Points are trading company stocks included in this sector. When it was reported that Mr. Buffett, an American investor who visited Japan in April, showed a willingness to actively invest in the shares of Japan general trading companies, the stock prices of major trading companies rose significantly across the board.

American investor Warren Buffett

And "banks", "insurance" and "securities". The reason for the rise in the stock prices of these financial stocks is believed to be the repurchase of financial stocks as concerns about financial instability receded.

There are various factors behind the rise in stock prices

However, the characteristic of the recent stock market rally is that other stocks have been bought evenly. We will look at it along with the factors.

1. Inbound Effects
Over the past month, rail and other land transportation have risen by 1.7%, retail by 9.7%, and services by 2.5%.
In the background, with the rapid increase in the number of foreign tourists, expectations for inbound effects are increasing.

9. Yen depreciation effectIt
has been pointed out that the depreciation of the yen has also pushed up stock prices.
Buying orders were placed in export-related stocks, and transportation and electrical equipment such as automobiles both rose 2.4%.

4. Expectations
for improvement in low PBR, and the other is the low PBR reform of the Tokyo Stock Exchange.
TSE encourages companies with low valuations in these markets to improve, as there are many so-called "low PBR" companies whose share price is less than 3x compared to their net assets per share. For this reason, there are buy orders that expect the reform of this low PBR company.

So who bought the shares? Recently, foreign investors have been conspicuously buying stocks.

According to an announcement by the Tokyo Stock Exchange, the amount of Japan shares purchased by foreign investors in the prime market exceeded 1 trillion yen in the five business days to the 1th. This is the first time that the weekly overpurchase amount has exceeded 1 trillion yen since the TSE was reorganized in April last year.

Why is trading so weak?

However, there is some data that you may be interested in. If there are so many reasons for the rise in stock prices, it means that there is no momentum in the data that shows the scale of trading.

Of the 4 days from the beginning of April to the 20th of April on the TSE Prime Market, trading volume fell below 14 billion shares, which is half of the seven days. Considering that trading volume fell below 10 billion shares on four days in January and one day in February and March, the sluggishness in April stands out.

Some market participants have said that they are concerned not only about volume but also about sluggish trading value. One of them said:

"In a phase like this one, when stock prices continue to rise for days and reach year-to-date highs, it is a rule of thumb that the daily trading value exceeds 7 trillion yen, but since the beginning of April, the 10 trillion yen line has never been crossed, and there are two days when it is less than 1 trillion yen. This may reflect the current state of the market, where many investors are taking a cautious stance on investment."

So why did stock prices continue to rise when the volume of transactions was not so large?

"The movement of stock prices like an elevator to a higher floor that does not stop at the middle floor is a characteristic of how overseas hedge funds buy back after a sharp decline in stock prices."

Norihiro Fujito, Chief Investment Strategist at Mitsubishi UFJ Morgan Stanley Securities.

Norihiro Fujito, Chief Investment Strategist, Mitsubishi UFJ Morgan Stanley Securities

Here, Mr. Fujito focuses on CDS = credit default swap spreads related to major European financial institutions.

CDS is an insurance-like financial product that helps companies prepare for default. When the risk of corporate bankruptcy increases, the spread on insurance premiums rises.

The spread's index associated with major European financial institutions rose sharply amid growing concerns about financial instability in Europe and the United States.

However, it peaked on March 3 on March 15 and then reversed, and has recently fallen to the level before the turmoil.

Mr. Fujito believes that due to the successive bankruptcies of U.S. banks, some overseas hedge funds rushed to give up financial stocks and other assets, while at the same time purchasing CDS in preparation for risks.

Later, as concerns about financial instability receded, he points out that they likely sold CDS and bought back stocks.

This trend seems to have been seen many times after the Lehman shock and the corona shock, and it means that only prices tend to rise even when volume is low.

Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities, said,
"During the upturn after stock prices plummet, overseas hedge funds buy back stocks through futures trading. In such a situation, even if the volume of physical products is small, the price often rises all at once."

How to make stock price increases "real"

Mr. Fujito said, "With concerns about financial instability still smoldering in the market, the current environment is not one in which investors can confidently invest their money in the stock market. If it is judged otherwise, expectations will quickly fall apart."

On the other hand, Shunsuke Kobayashi, chief economist at Mizuho Securities, points out that the risk of an economic slowdown in Europe and the United States should still be considered.

Mizuho Securities Chief Economist Shunsuke Kobayashi

"We cannot say that the cloud of Japan stocks has completely improved, and the risk of an economic slowdown in Europe and the United States that the market estimates may not be sufficient. If monetary tightening becomes prolonged and the economic slowdown in Europe and the United States becomes a reality, investors may become more risk-averse again."

While there have been many positive factors for the recent rise in stock prices, I thought it was necessary to have a firm grasp of possible risks in the future.

Upcoming

Next week, on the 27th and 28th, the first monetary policy meeting since the new BOJ took office will be held. What is the new Governor's view on monetary policy? Market attention has been focused on the outcome of the meeting and the statements made at the press conference.

In addition, the Outlook Report will be released after the meeting. The outlook for prices through fiscal 2025 will be presented, which is also noteworthy.

In addition, in Japan and the United States, major companies are announcing their financial results one after another. The focus is on how financial instability in Europe and the United States has affected earnings results and earnings outlooks.