Why Japanese Stocks Could Keep Rallying

Bullish:

• $NKY - Japanese equities poised for continued gains following historic electoral victory providing political stability and corporate governance reform momentum

  • “Our view is that this election result is extremely consequential, both from a a political stability point of view within Japan and as a positive for the overall Japanese equities market itself”

    Bruce·0:55

  • “What you tend to see is there's an initial positive market reaction and the market tends to go up about 20% on average in the first three months after the election itself”

    Bruce·1:36

  • “We believe that we're still very much in the upward phase of the current market cycle”

    Bruce·8:03

  • “Japan is significantly outperforming The US in dollar terms now. So plus 14% year to date for topics versus year to date flat for the S and P”

    Bruce·15:41
• $JAPAN - Foreign investors still underweight Japan with significant room for increased allocations as corporate governance reforms accelerate

  • “When we look at mutual fund data, you know, it still suggests that mutual funds are underweight Japan, not as underweight as they were in April, but still underweight”

    Bruce·11:53

  • “We saw about 1,800,000,000,000.0 of net buying by foreigners the week before the election, and that was the second highest on record”

    Bruce·12:07

  • “The foreign positioning in Japan, it's improving, but it's still not at levels that you could call stretched”

    Bruce·12:27

  • “One of the noticeable trends was the number of new US based investors and allocators that were coming through Tokyo and kicking the tires on the Japanese equities market”

    Bruce·16:27
• $TOPIX - Topix multiple expansion expected as political stability reduces risk premium and attracts foreign capital

  • “Over that next nine month period, what we see is there's an expansion of the topics multiple. And that peaks about three points higher from where we tend to be at the start of the election result”

    Bruce·1:47

  • “That type of more favorable environment tends to pull in more foreign investors who also help push the multiple higher”

    Bruce·2:38

  • “Since then, Topix has more than doubled, but we think we should see more upside in the next phase”

    Bruce·8:14

Bearish:

• $SPY - US equities underperforming Japan significantly with geographic diversification trade accelerating outflows

  • “Japan is significantly outperforming The US in dollar terms now. So plus 14% year to date for topics versus year to date flat for the S and P, and I think Nasdaq is now down 2% for the year”

    Bruce·15:41

  • “If you think about the geographic diversification trade out of The US that Peter Oppenheimer has been focused on for a while now, it feels like that is playing out in Japan at the moment”

    Bruce·7:40
• $QQQ - Nasdaq down for the year as capital rotates from US tech to Japanese equities

  • “I think Nasdaq is now down 2% for the year”

    Bruce·15:52

  • “When Japan outperforms The US on a dollar adjusted basis, that tends to bring more foreign flows back into the Japanese market”

    Bruce·15:57