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A tailwind behind Japanese stocks is strengthening as large foreign funds who have been avoiding the market for decades start to reach into pockets deep enough to take the Nikkei back to its 1989 peak.
Their money was on the sidelines while the Nikkei 225 surged 27 percent in the first half of the year, as managers kept habitual below-benchmark weightings on Japan – settings that didn’t budge for years while the share index disappointed.
The best first-half gains in a decade, corporate reforms and continuing ultra-easy monetary policy supporting the economic recovery have led to a change in mindset.
The research arm of BlackRock, the world’s biggest asset manager, shifted its view on Japanese equities to neutral from underweight.
“We are looking for more evidence of corporate reform to support the enthusiasm for its equity markets that has gripped foreign investors so far this year,” wrote analysts at BlackRock Investment Institute, in its mid-year outlook report last week.
BlackRock’s shift could be the next step in the Nikkei story and open the floodgates for other deep-pocketed investors to join in the momentum.
Nomura Securities expects others will soon follow suit. Japan’s biggest brokerage estimates some 10 trillion yen ($70 billion) of potential inflows from foreign long-only investors as they rebalance portfolios in a mass migration to neutral weightings.
That amount would be enough to lift the Nikkei 5,000 points, Nomura said.
