"It's not just a 'it's time to go downhill after you've reached the top'.
On Thursday (February 22), the Nikkei 225 index broke through the December 1989 high of 38,916 points and closed at 39,09868 points, a record high.
Morgan Stanley strategist Jonathan Garner commented: "While the Nikkei 225 has been moving very fast lately, we don't think it's just a 'it's time to go downhill after the top'.
Morgan Stanley analysts noted that profits of listed companies on the Orient Prime market rose 20% year-on-year, while data from Societe Generale showed that Japan is the only country where earnings per share expectations for listed companies are rising this year and next.
At the moment, Japan's listed companies have not yet received a clear boost to profit growth, such as artificial intelligence, so their profit growth is very impressive. And oddly enough, Berkshire Hathaway's investments in Mitsubishi, Mitsui, Marubeni and Sumitomo — all of which are Buffett's highly successful investments — have been the biggest drag on the earnings of Japan's publicly traded companies.
Driven by the reform of the governance of listed companies, the scale of buybacks of listed companies in Japan has reached a record high, and at the same time, there are signs that Japan is emerging from deflation, so the Bank of Japan is considering exiting the negative interest rate policy.
Analysts also pointed out that the Nikkei 225 is a stock price-weighted index like the Dow Jones Industrial Average, unlike the general index that sets weights according to market capitalization, and the compilation rules are more "outlandish", for example, the company with the most weight in the Nikkei 225 index is Fast Retailing, if ranked by market capitalization, Fast Retailing ranks seventh, and Toyota Motor, the largest by market capitalization, ranks 15th in the Nikkei 225 index.
Japan's Topix index, which has more "normal" rules, is still about 8% away from its peak. Over the past 52 weeks, the S&P 500 has lost 24% over the same period, and the Ishares MSCI Japan ETF (EWJ) has lost 20% over the same period, which is smaller than the S&P 500 but still very impressive.
Investing in Japan** is also risky.
The fact that Japanese listed companies have very large exposure to both the U.S. and Chinese markets is not an issue at this time. In addition, China is currently dealing with a debt problem. There is also the factor of the yen, which could appreciate sharply if the Bank of Japan raises interest rates, which in turn weakens the competitiveness of Japanese exporters.
Text |Steve Goldstein
Edit |Guo Liqun
Copyright Notice: Barron's original article, without permission, may not**. For the English version, see "What's Behind the 34-Year Roundtrip for the Nikkei 225" on February 22, 2024.
The content of this article is for informational purposes only and does not constitute investment and financial advice of any kind; The market is risky and investors should be cautious. ）
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