As the Nikkei 225 Stock Average rises toward its highest level in more than two decades, one group of investors has surprisingly missed out.
Since the start of 2016, foreigners have offloaded some $27 billion in the Asian country’s equities. While they were initially right to sell as the Nikkei 225 fell to a 20-month low in June 2016, they’ve been slow to return, even as the measure trades within 4 percent short of its highest close since 1996. In fact, a Bank of America Merrill-Lynch survey published this month showed global fund managers cut their allocations to Tokyo shares.
Strategists say overseas investors, who made big profits plowing money into Japanese equities in Prime Minister Shinzo Abe’s early years, simply took their eye off the ball. They’ve been diverted by markets like Europe, where valuations are attractive and political risk has receded, as far-right candidates lost in French and Dutch elections. For once, Japanese investors are much more optimistic about Japan — pushing two measures of smaller shares to the highest on record.
“Japan doesn’t seem to be foreign investors’ predominant focus,” Shusuke Yamada, chief foreign-exchange and equity strategist at Bank of America Merrill Lynch in Japan, said in a phone interview. “We don’t have big events. It may not be easy for the Japanese market to attract attention.”
The Nikkei 225 has risen 35 percent from that low in June last year, while the Jasdaq Index and the Tokyo Stock Exchange Second Section gauge of smaller stocks, which are dominated by local investors, both advanced to records this week. The Nikkei 225 slipped 0.5 percent Wednesday.
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