Warren Buffett's moves have attracted a lot of attention! Behind the Japanese stock market refreshing its 33-year high, the mad bull market is about to start again?

Finance Associated Press, November 21 (Editor Xiaoxiang) After nearly four months of silence, with Warren Buffett's Berkshire issuing yen bonds for the second time this year, many Japanese stock bulls seem to be ready to move now...

Although the Nikkei 225 index edged lower on Tuesday, it rose to 33,853.46 points the next day, the highest level in 33 years for the first time in four months. The blue-chip index is now up nearly 30% this year, supported by a weaker yen, solid corporate earnings and corporate governance reforms advocated by the Tokyo Stock Exchange.

Charu Chanana, market strategist at Saxo Markets, said, "The potential structural changes in the Japanese economy continue to drive Japanese stocks higher, while the market expectation that the Fed's rate hike cycle is over has also brought a helping hand to the Japanese stock market, and the strong performance of Japanese companies in this earnings season is the most important behind the recent rally." ”

Part of the reason for the rally in Japanese stocks is a strong earnings season – the yen fell all the way to a one-year low in the third quarter, boosting the profit prospects for exporters, and companies are passing on higher costs to consumers – something that was almost unthinkable before the pandemic.

At the same time, there are signs that the Japanese stock market is once again starting to attract large foreign capital inflows as global fears of Fed rate hikes ease.

Foreign investors bought a net 1.12 trillion yen ($7.4 billion) worth of shares in the week ended Nov. 10, the largest weekly net buying since the week of June 16, according to the Japan Exchange. In terms of capital flows, these overseas funds are mainly concentrated in derivatives, with a total of about 1.04 trillion yen, and an additional 78.3 billion yen is directly invested in stocks.

For the full year, Japan's stock market has attracted a net inflow of 5.96 trillion yen from foreign investors so far this year, in stark contrast to the 4.07 trillion yen net outflow in the same period last year.

It is worth mentioning that similar to the rise in Japanese stocks in the first half of this year and Buffett's move to increase the size of Japanese stocks, Berkshire's recent new moves in the Japanese market have also attracted the attention of many investors.

Last week, Warren Buffett's Berkshire Hathaway issued 122 billion yen worth of yen bonds, the company's second issuance of yen bonds this year. Some industry insiders have also speculated that Warren Buffett is likely to increase his bets on Japanese stocks again. Japanese banks, insurance companies and automakers may become the next target of stock gods.

The survey expects Japanese stocks to rise further next year

According to a new survey released by industry media on Tuesday, the Nikkei 225 index's year-to-date rally of more than 28% is expected to continue into 2024 - by the end of June next year, it is expected to rise to 35,000 points, further refreshing more than 30-year highs.

The estimate for the survey of equity strategists, conducted from November 10 to 20, ranged from 31,143 to 39,500. All respondents expect Japanese earnings to continue to grow, although many also expect the positive effects of a weaker yen to fade as the BOJ's ultra-loose stimulus comes to an end and the Fed's tightening cycle peaks.

In a recent research note, a team led by Yunosuke Ikeda, chief equity strategist at Nomura Securities in Tokyo, pointed out that there are three reasons why Japanese stocks have been climbing this year: the gradual transition of the Japanese economy from deflation, the improvement of corporate governance in Japan, and the attractiveness of Japan as an investment diversifier in Asia.

Nomura believes that this situation is expected to continue in 2024. A stronger yen as U.S. interest rates fall and the yen may be a headwind for Japan, but higher profit margins due to inflation will encourage Japanese companies to continue to grow their profits in fiscal 2024-2025. Nomura expects the Nikkei 225 to stand above 38,000 by the end of December 2024.

Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui DS Asset Management in Tokyo, pointed out that business investment and consumer demand, especially in the service sector, had previously been pent-up, so he predicted that the Nikkei 225 index would reach 39,500 points in June next year and 40,900 points by the end of 2024 - the most bullish forecast in the survey.

"We are constructive mainly because we are optimistic about nominal GDP growth, and there is still room for equity prices to reflect a better picture of EPS growth," Kichikawa said.

However, Kichikawa and other interviewees also said that the yen may have bottomed out after hitting a trough of 152 yen per dollar earlier this month on expectations that the Federal Reserve could start cutting interest rates around May next year and the Bank of Japan could exit negative interest rate policy early next year. This could mean some stagnation in the rally of the Japanese stock market in the second half of next year, with the Nikkei 225 remaining stuck at 35,000 by the end of next year, according to the median of the survey.

Tony Sycamore, an analyst at British investment bank IG in Sydney, is one of the only two analysts who predict that the Nikkei 225 will fall from 35,000 to 33,000 in the second half of next year.

Sycamore noted that 35,000 appears to be the peak level at which the Nikkei's rally coincides with the timing of the Bank of Japan's removal of negative interest rates. The Nikkei 225 is still supported by the Bank of Japan lagging behind the yield curve for now. But sometime early next year, the BOJ will need to do what it needs to do, and that won't be good news for equities.

(Finance Associated Press Xiaoxiang)