Nikkei 225 passes 20,000 after 15-year wait

Japan's Nikkei 225 closed above 20,000 points on Wednesday for the first time since the days of the dotcom bubble, as investors responded to signs of improving corporate governance and an uptick in exports.

The Nikkei rose 1.1 per cent to 20,133, its highest close since March 2000, while the broader Topix added 0.8 per cent for its strongest finish since late 2007.

Earlier in the day, Japan announced its first monthly trade surplus since June 2012, with exports up 8.5 per cent and imports down 14.5 per cent - a byproduct of weaker global oil prices.

The figures suggest some benefits of Abenomics are starting to feed through - and are catching global investors' attention - with companies enjoying higher export volumes, as well as just the profit boost from a weaker yen. Economists are watching whether wage gains lead to higher consumption in Japan, which could spread the sales growth to domestic companies such as retailers.

While China's bull run has garnered the most attention from investors in Asia this year, Japan's stock market is the world's second best performer.

As elsewhere in the world, Japan's equity rally had been powered largely by large-scale asset purchases, or "quantitative easing" by the central bank. But "now you are seeing something on top of that", says David Stubbs, global market strategist at JPMorgan Asset Management.

Japanese companies are benefiting from lower oil prices and are also being encouraged to improve their corporate governance to the benefit of shareholders, Mr Stubbs argues. For global investors, Japanese equities could also be attractive as a way of diversifying away from European or US markets.

However, Didier Saint-Georges, investment committee member at Carmignac Gestion, the Paris-based asset manager, says Japanese companies' overseas sales growth would depend on a pickup in global prospects. "The export strength of Japan may soon be under pressure, so the jury is still out. We're not jumping into Japanese equities just yet - but it [Japan] is intriguing," he says.

The Nikkei and the Topix have both risen 15 per cent in US dollar terms in 2015, compared with a 1.9 per cent increase in the S&P 500 and a 3.5 per cent rise in the FTSE 100. In contrast to previous equity rallies in Japan, the yen has been flat against the dollar in that time.

The Topix now trades at around 14 times forward earnings estimates, compared with 15.8 times for the S&P 500.

Pharmaceutical stocks have been among the biggest movers, with Eisai up 81 per cent and Kyowa Hakko Kirin rising 54 per cent.

The market has been boosted in part by growing signs that corporate Japan is finally taking on board longstanding complaints from shareholders about poor returns and a lack of transparency. The Bank of Japan is "really trying to change the way that corporate Japan interacts with its minority shareholders - as well as buying equities themselves", says Mr Stubbs.

Earlier this year, secretive robotmaker Fanuc bowed to investor pressure - including from activist fund manager Daniel Loeb - by saying it would strive to improve dialogue with shareholders and boost returns. Its stock price has risen by a third this year.

Similarly, Nintendo announced a shift towards mobile gaming following months of needling from investors and analysts, a move that has sent shares up 66 per cent in just a few weeks.

Oasis Management, a hedge fund that had been pushing for change at Nintendo, has since turned its attentions to Kyocera and Canon.

"More than ever, there are signs of a broad-based commitment to reforms, and with returns going up, we can expect valuations to rise over the medium term," says Alex Treves, head of equities for Japan at Fidelity, in a note.

A new equity market index, the JPX-Nikkei 400, based on return on equity and profits has helped by giving investors a gauge that strips out poorly performing large companies.

Other factors have also helped, such as the switch into equities by Japan's mammoth pension fund, GPIF, and improved exporter earnings thanks to a weaker yen. Some analysts also believe the domestic economy is gathering momentum.

"The co-ordinated pro-growth policies, the changes in corporate behaviour that are occurring and the fact that Japan offers reasonable valuations in a global context should support the case for Japan," adds Mr Treves.

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation