MW: Asian shares mostly higher; Nikkei touches 20,000
TOKYO--Tokyo stocks briefly broke above 20000 for the first time in 15 years in early Friday trading, the latest milestone in the market’s bull run, while stocks in Hong Kong extended a six-session winning streak.
The Nikkei Stock Average NIK, -0.15% kicked higher in early trade and touched an intraday high of 20,006.00, extending a rally fueled by Japanese Prime Minister Shinzo Abe’s pro-growth policies. It has since pulled back and has been fluctuating in and out of the red; it was last off 0.1% at 19,922.14. The Hang Seng Index HSI, +1.22% gave up a 1% early gain as excitement over buying by Chinese investors cooled and was just 0.1% higher.
Tokyo traders say that persistent domestic demand for stocks through systematic futures buying was causing the recent surge, which has now pushed the index up nearly 15% for 2015. Part of the strength in domestic demand lies in buying from Japanese public pensions and the Bank of Japan. The last time the index passed the 20,000 mark was on April 17, 2000.
“Markets globally are more central bank policy-driven than ever, which has sent stock valuations to sky-high levels and bond yields negative,” says Lorne Steinberg, chief executive at Montreal-based Lorne Steinberg Wealth Management. “In that context, the Nikkei at 20,000 is not a surprise. But Japanese equities have the added appeal of better value versus other developed markets, as profits are growing faster, while shareholder returns are also improving.”
The roots of the current Japan stock rally can be traced back to the central bank’s most recent round of quantitative easing on Oct. 31. Almost simultaneously, the ¥120 trillion Government Pension Investment Fund announced plans to increase its exposure to domestic equities while cutting the number of bonds in its portfolio.
Relative to the size of Japan’s economy, all the new buying was larger than anything attempted by either the U.S. Federal Reserve or the European Central Bank.
“The BOJ’s Halloween surprise...convinced investors that they simply have to be long in the market now, in order to win,” says Chris McGuire, CEO at Phalanx Capital Management, a Chicago-based hedge fund.
Noticeably, the market’s current rally has taken place without much movement in the yen. During the Nikkei’s 57% surge in 2013, the dollar USDJPY, -0.12% rose over 21% against the yen, taking a bite out of dollar-denominated profits.
“A stable dollar-yen rate is key for international investors, as they have less to worry about when pricing returns in their home currencies,” says Daisuke Uno, strategist at Sumitomo Mitsui Banking Corp.
The greenback has been fluctuating between about ¥118.50 and ¥120.50 for much of the last month. It was trading around ¥120.55 early Friday.
Longer term, a break of the 20,000 mark may be a powerful symbol for investors, Mr. Steinberg added. “We’ve been overweight on Japan stocks for years, but there are certainly many internationally-minded fund managers who will reconsider overweighting Japan as well. At this rate, it will be considered too risky to not be exposed there.”
Elsewhere in the region, including in Australia XJO, +0.61% , Korea SEU, +1.40% and Shanghai SHCOMP, +1.94% , stocks were mostly up a fraction of a percent.
