Japan's Neglected Stock Market Expected to Catch Up Benefiting from Economic Recovery

[Asia Economy Reporter Song Hwajeong] The Japanese stock market, which had been left out of the recovery from the novel coronavirus infection (COVID-19), is expected to show a 'catch-up' trend benefiting from the economic recovery.

According to NH Investment & Securities on the 19th, foreign capital has recently been flowing into the Japanese stock market. Last month, foreigners net purchased 1.5 trillion yen in the Japanese stock market. This is the largest monthly amount in 1 year and 7 months since April 2019. Park Juseon, a researcher at NH Investment & Securities, analyzed, "This rare improvement in foreign capital inflow is due to expectations of economic recovery and the high valuation attractiveness compared to major global countries," adding, "Since the market has a high proportion of economically sensitive and export stocks, it is expected to benefit from the global economic recovery, and attention to the undervalued Japanese stock market is necessary."

While global stock markets have recovered from the shock of COVID-19, the Japanese stock market showed signs of being left out. The Nikkei 225, Japan's representative index, surpassed the 26,000 yen mark, reaching its highest level in 29 years, but this was an optical illusion caused by the index calculation method. Researcher Park said, "Based on the sum of the market capitalization of constituent stocks rather than the existing calculation method, it has nearly recovered to pre-COVID-19 levels," adding, "In other words, although the Japanese stock market looks good, the total market capitalization of the entire market has not increased."

The strong yen is a burden factor but is at a manageable level, according to the analysis. Researcher Park said, "There are concerns that the strong yen trend could offset the volume recovery effect of export gears," adding, "Considering Japan's domestic economic conditions where deflationary pressure is intensifying based on the dollar-yen exchange rate, the strong yen trend is expected to continue." He further added, "However, the pace of the strong yen trend will be at a level that Japanese companies can sufficiently endure."

There is an opinion that attention should be paid to companies that can benefit from the economic recovery. Researcher Park said, "Expectations for global economic recovery outweigh concerns about the strong yen, and given the high valuation attractiveness among major countries, a catch-up of the previously left-out Japanese stock market is expected," adding, "Companies such as Sony, Honda, Fanuc, and Nippon Steel, which can benefit from the economic recovery, are the focus group."

This content was produced with the assistance of AI translation services.