Investing.com - The Japanese stock market has reached its highest point in 33 years, driven by investors' optimism regarding improved corporate governance and a fresh focus on shareholder value after decades of underwhelming returns. The TOPIX index has surged by nearly 13.9% this year, nearing the peak it experienced before the infamous market crash in late 1989. Similarly, the Nikkei 225 index saw gains of more than 16% since January and is also approaching post-crash records.
Foreign investors have shown significant interest in Japanese stocks and futures over the past five weeks, with net inflows nearing $30 billion during that time - one of the largest influxes seen in recent years. Alongside enthusiasm for potential shifts in corporate priorities, many investors view Japan as a safer alternative to China for gaining exposure to Chinese growth without heightened geopolitical risks.
Years of disappointing returns had deterred numerous fund managers from investing heavily in Japan's complex corporate structures. However, an increasing number are now recognizing that Tokyo’s stock market offers high-earning opportunities with undervalued stocks amid ongoing improvements to corporate governance.
Shrikant Kale from Jefferies noted that foreign investor interest peaked around "Abenomics" era when Shinzo Abe was Prime Minister promising economic reforms back in early days of his tenure since then he hasn't observed such level of excitement among foreign investors until now.
Warren Buffett’s recent visit to Japan further fueled investment momentum; however overseas investors acknowledge that it is not solely due to his presence but rather reflects broader changes occurring within the country.
Japan stands out as an attractive option for global investments thanks primarily due its relatively predictable policymaking compared with rapid regulatory crackdowns often seen elsewhere particularly China which can be detrimental to investors. Additionally, Japan’s commitment to the rule of law and a corporate governance regime favorable to equity owners make it an appealing choice for those seeking exposure in Asia.
Though there is considerable optimism surrounding Japanese stocks, sustained reallocation of assets has yet to materialize. However, evidence suggests that improvements in corporate governance and shareholder relations are driving increased investment interest.
Hiromi Yamaji, the new head of Japan Exchange Group which oversees Tokyo Stock Exchange (TSE), has indicated plans for a stronger stance on encouraging companies to increase their corporate value. This includes closer attention paid towards price-to-book ratios, share prices, and capital costs as many listed firms have not adequately implemented the 2015 governance code according him.
These changes at TSE have prompted numerous companies to repurchase shares while also addressing confusing cross-shareholding structures and increasing engagement with shareholders ahead of annual public meetings. Buybacks across Japanese corporations reached an all-time high during last financial year ending March 2021 amounting ¥9.7tn ($71bn). Analysts predict another record-setting buyback wave by end May due intensifying pressure on management teams demonstrate adherence recent comments made by TSE regarding higher returns expectations from them.