'Market Cap Growth Twice That of China'... Japanese Stock Market Attracting Asian Investment Funds

$400 Billion Increase Compared to Last Year
Record High in Asia-Pacific Market
Minimal Impact from US Stock Market and Strong Growth
Yen Plunge Also Positive Factor
Mixed Outlook for Second Half of the Year

The market capitalization of companies listed on the Japanese stock market increased by approximately $400 billion (524 trillion KRW) this year, marking the most notable growth among Asia-Pacific markets. The Japanese stock market is heating up due to improved corporate earnings from the weak yen, the possibility of a U.S. economic recession, and efforts to enhance corporate value.

◆Increase in Market Capitalization of Japanese Listed Companies Twice That of Chinese Stock Market

On the 23rd, Nihon Keizai cited statistics from financial research firm QUICK, reporting that as of the 19th, the market capitalization of Japanese listed companies on the Tokyo Stock Exchange reached $5.8 trillion, an increase of $400 billion (7%) compared to the end of last year. The market capitalization of the Taiwan Stock Exchange increased by about $240 billion, China by $200 billion, and South Korea by about $180 billion. During the same period, the Tokyo Stock Exchange's market capitalization size did not surpass that of the Chinese stock market, which includes the Shanghai Stock Exchange ($7.37 trillion) and the Shenzhen Stock Exchange ($4.93 trillion).

The Japanese stock market has shown remarkable growth this year. The market capitalization share of the Japanese stock market in the Asia-Pacific region has grown to 18-19%. In June of last year, it was only about 16%, but the share has gradually increased. According to trading data released by the Tokyo Stock Exchange on the 19th, Asian investors' purchases of Japanese stocks also reached the highest level since April 2015.

With investment sentiment in the U.S. stock market weakening, money moves appear to be shifting to the relatively less affected Japanese stock market. The U.S. is facing a higher possibility of an economic recession due to last year's aggressive tightening, and recent difficulties in debt ceiling negotiations have further dampened investor sentiment. In contrast, Japan is relatively less influenced by the U.S. stock market and has recorded a favorable economic growth rate compared to neighboring countries. Japan's economic growth rate recorded 0.4% quarter-on-quarter, exceeding expectations of 0.2%.

The yen, which plummeted to an all-time low last year, has also positively impacted corporate earnings, increasing interest in the Japanese stock market. The market expects that the decline in the yen's value will significantly improve the earnings of major listed companies, such as exporters, last year.

Demands from the Tokyo Stock Exchange to enhance corporate value have also been a positive factor for the stock market. Listed companies that were trading below their book value have responded to the exchange's demands by repurchasing their own shares to manage stock prices. Mitsubishi Corporation decided to repurchase up to 6% of its own shares for $2.2 billion, and major Japanese technology companies Hitachi and Fujitsu also announced plans for large-scale share buybacks to increase corporate value.

◆Mixed Outlook for the Second Half of This Year

With funds pouring in, the Japanese stock market has been rising day after day. Recently, the Nikkei 225 average and the TOPIX index hit their highest levels in 33 years. On the 19th, the Nikkei 225 closed at 30,808, up 234 points (0.77%) from the previous day, reaching its highest level since August 1990 during the bubble economy period.

Min Byung-gyu, an analyst at Yuanta Securities, stated, "The weak yen, recovery in key industries such as semiconductors and automobiles, and improvement in travel balance have combined to drive the strength of the Japanese stock market."

A man is walking past an electronic board displaying the Nikkei 225 index of Japan. [Image source=AP Yonhap News]

Some optimistic views suggest that Japan may emerge as an alternative investment destination in Asia, replacing China. Nihon Keizai reported, "With the failure of Ant Group, a financial company under Alibaba, to go public in 2020 and the increasing regulatory pressure on private companies by Chinese authorities, investors are changing their outlook on the Chinese stock market," adding, "The possibility of a Taiwanese invasion due to U.S.-China tensions is also perceived as a risk factor for the stock market."

Experts have differing opinions on whether this trend will continue through the second half of the year. Kazunori Datebe and Bruce Kirk, investment strategists at Goldman Sachs, stated in an investment strategy report, "We are focusing on the Japanese market, which has stronger fundamentals compared to overseas stock markets, and expect that improvements in corporate governance will further boost Japanese stock prices."

As the pace of growth is expected to slow in the second half of the year, some suggest focusing on sector-specific investments rather than the overall index. Choi Bo-won, a researcher at Korea Investment & Securities, said that while the Nikkei 225 has the potential for further gains, "Although the earnings season in April and May was favorable, the 12-month forward price-to-earnings ratio has not significantly improved, increasing valuation pressure, so the pace of index growth is expected to slow." He added, "As we enter the second half of the year, sector-specific responses will be more effective than focusing on the index," explaining, "Preferred sectors include IT, industrials, and consumer staples."

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