Strategist View

Japanese Equity Market Trends and Outlook– Foreign Investors’ Investment Attitudes toward Japanese Equity
Nomura Asset Management Co., Ltd. Published August 30, 2024

Hideyuki Ishiguro
Chief StrategistFigure 1. Nikkei 225 and Cumulative Net Trading Volume
by Foreign Investors(cash equities and futures total since early 2023)

Selling by foreign investors led the decline inJapanese stocks
From mid-July to early August, the correction trend in theNikkei Stock Average (Nikkei 225) intensified. This isbelieved to be due to overseas investors, who have asignificant influence on the Japanese stock market, heavily
selling Japanese stocks (Fig 1). At the end of July, Bank ofJapan Governor Kazuo Ueda expressed a proactive attitude
towards continuous interest rate hikes, which further
strengthened the yen and raised concerns over Japanesecompanies' business performances, accelerating the sellingof Japanese stocks by overseas investors. However, both
Governor Ueda and Deputy Governor Shinichi Uchida of theBank of Japan have softened their tone regarding interest
rate hikes, and recently, movements in the yen havestabilized, which has started to ease the selling pressure fromoverseas investors (Fig. 1).

Focus on continuing progress against deflation andcorporate reform

Period: (Nikkei 225) January 6, 2023 to August 29, 2024, weekly(Cumulative net trading volume between by foreign investors) January 1, 2023 to August 3,2024, weekly ・Futures are for Nikkei 225 Futures and TOPIX Futures, Large and Mini Source:
Nomura Asset Management based on data from Bloomberg.

Figure 2. Cumulative Net Trading Volume of Cash

Equities and Futures by Foreign Investors
When dividing into cash equities and futures, the adjustment
in Japanese stocks is primarily attributed to futures trading,which tends to reflect the activities of hedge funds and similar
short-term investors (Fig. 2). Foreign investors sold about 3.5
trillion yen worth of futures over five weeks starting from thethird week of July (turning to a net purchase of over 390
billion yen in the third week of August). On the other hand,cash equities transactions, which are said to reflect theactions of mid- to long-term investors, saw net selling of onlyaround 680 billion yen during the same period. Notably, in thefirst week of August, when Japanese stocks plummeted, midto long-term investors were net buyers of nearly 500 billion
yen worth of cash equities, indicating that their interest inJapanese equities remains intact.
In fact, since the beginning of 2023, when the upward trend inJapanese stocks became clearer, the cumulative net
purchase volume for cash equities has been maintaining ahigh level of about 6.7 trillion yen. In contrast, futures havePeriod: From the first week of January 2023 to the third week of August 2024,
recorded a net sell-off of about 2.0 trillion yen, indicating
weekly. Source: Bloomberg by Nomura Asset Management
significant demand for future buybacks. As market turbulence
appears to be subsiding, the key question is whether progress towards Japan's exit from deflation and towards
corporate reform will continue, which could revive overseas investors' interest in Japanese stocks.

*This commentary is based on personal views of the author and does not necessarily represent Nomura AssetManagement house view.
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