A bear market rally in Japanese stocks may be underway, but its sustainability is in question as foreign investors remain hesitant, according to a recent note from JPMorgan analysts. Last week, Japan’s Nikkei 225 and TOPIX indexes fell into bear market territory, each dropping more than 20% from recent peaks. Despite a sharp rebound, JPMorgan attributes the recovery largely to domestic investors—both individual and institutional—engaged in dip buying rather than a resurgence of foreign capital.
The note highlights that while the rebound has been significant, it might be premature to label it as a sustained rally. The absence of substantial foreign investment raises concerns about the durability of the rebound. Foreign investors had aggressively sold Japanese equities the previous week, and there are no strong indicators of their return during the recent market upturn.
Foreign buying activity, when it occurred, was primarily directed towards defensive sectors or banks, which stand to benefit from anticipated interest rate hikes. This trend reflects a cautious approach rather than a broad-based reinvestment in Japanese equities.
JPMorgan’s analysis points out that the ability of domestic investors to sustain the market rally is crucial until foreign investors show a more pronounced return. The overall sentiment towards Japanese markets has been adversely affected by recent hawkish signals from the Bank of Japan, which raised interest rates in late July and signaled further increases this year.
I am Aparna Sahu
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