©Reuters
Investing.com — BOFA analysts say in a recent note that there is still room for North American investors to invest in the Japanese stock market, with the majority of investors in the market after impressive stock market gains over the past year. He said he is looking to allocate more capital.
Citing a meeting with US and Canadian investors, BOFA said that amid a paradigm shift in Japan's economic outlook, several Asian investors are moving funds from China to Japan, while a small number of US and Canadian investors are moving funds from China to Japan. of investors said they were overweight Japan.
NA investors consider allocation to Japan after strong rally
However, BOFA says more North American investors are interested in increasing their capital allocation to Japan, due in part to an element of FOMO (fear of missing out) following the sharp decline in Japanese stocks over the past year.
Japan's index was one of the best-performing major stock indexes in 2023, rising nearly 30% and setting consecutive new highs in 2024. The index's strength was driven by a combination of strong corporate earnings, heavy industry, and semiconductor manufacturing exposure. The artificial intelligence boom, and the ultra-dovish Bank of Japan in contrast to other major central banks around the world.
The inflow of funds into Japan was also due to investors shifting away from China amid worsening economic conditions and flowing into Japan, where the economic outlook appears relatively positive.
The Bank of Japan avoids risks…
Analysts at BOFA said the Bank of Japan's widely expected policy change at its March meeting poses some risk to the outlook for Japanese stocks. The rapid appreciation of the yen associated with such moves by the Bank of Japan also poses a risk.
But analysts at BOFA said the central bank is likely to remain conservative in its tightening policy, and that policy should remain relatively accommodative for at least the next two years.
“The Bank of Japan is likely to raise interest rates in stages, and the market is pricing in a maximum rate hike of 0.5% over the next two years (we expect the policy rate to be raised to 0.5% next year). With core CPI at 2%, real policy rates will remain at -1.5% for the next two years,” BOFA analysts wrote in a note.
Focus on Japan's demand-driven stocks, manufacturing industry
Japan is now in an era of rising wages and inflation, and BOFA analysts believe that investors' preference for local stocks is likely to increase as investors' preferences for retailers, service providers, IT services and, to some extent, real estate markets and insurance companies. He said there is a possibility that this will spread to domestic demand-driven stocks as well. .
Japanese manufacturing could also benefit from a recovery in the global manufacturing cycle, especially as China and the United States begin to rebuild their supply chains.
Over the past year, investors who were overweight in Japanese stocks were mainly concentrated in banks, trading companies, automakers and semiconductor companies.
