Non-Japan investors, who account for 70% of Japan’s stock trading volume, have been the main driver of the recent drop in stock prices since the beginning of July.
According to specialists at UBS Global Research in a report released on Friday, after buying nearly 2.9 trillion yen ($20 billion) in Japanese stocks from the beginning of 2024 until mid-July, these international investors changed their strategy, selling their shares widely over the past three weeks.
As a result, they turned into net sellers, discarding 40 billion yen ($275 million) of shares year-to-year until August 2.
However, a more detailed examination indicates that these investors have not completely abandoned their positive attitude towards Japanese stocks. Although they have become net sellers, they have maintained their direct equity investments since the previous year, suggesting an upbeat market outlook over the medium term.
Instead, they were selling futures contracts in the first place, likely due to a lack of confidence in short-term market drivers, concerns about large fluctuations in the value of the Japanese yen, and global economic uncertainties.
In contrast, individual investors in Japanese Japan and companies adopted a different strategy during this volatile period. Local retail investors were net buyers of shares, and Japanese companies were consistently implementing large share buyback programs announced earlier in the fiscal year.
“The recent volatility in the stock market was certainly unexpected, and it is clear that the rapid appreciation of the yen has reduced the possibility of gains in Japanese stocks,” the specialists commented.
Read also:Three industries to evaluate during falling European stock prices: HSBC
Once current uncertainties, such as fluctuations in yen value and global market sentiment, become more predictable, experts at UBS Global Research expect international investors to move from holding their cash to increasing their equity investments.
This change could lead to a sustained rise in the value of Japanese stocks, especially as attention shifts from the depreciation of the yen to the ability of Japanese companies to continuously enhance their profitability and return on equity.
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