Japan's Equity Faithful Want Foreigners to Spur Market Rally

(Bloomberg) -- Japanese retail investors bought domestic stocks for a fourth consecutive week, stoking hope that foreign buyers will join them in helping the market make a full recovery from a rout that started last month.

Individual investors last week added to their record net purchases of the nation’s stocks, yet foreigners were net sellers for a sixth straight week. Overseas players -- who generated 68 percent of the market’s equity trading value last month -- have to start buying more if Japan’s equity benchmark is to rebound from its 10 percent correction, analysts said.

“The market won’t resume its rising trend unless foreign buyers come back,” said Norihiro Fujito, a senior strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “Buying by Japan’s individual investors can work as a shock absorber for the market as it reduces the downside risks.”

Japan’s individual investors bought 85.1 billion yen ($795 million) more shares than they sold in trading at the Tokyo and Nagoya securities exchanges in the week ended Feb. 16, according to data released Thursday. That came after a record net buying of 745.8 billion yen in the week ended on Feb. 9, an amount that exceeded purchases in 1987 during the week of Black Monday.

A global equity meltdown sent the Nikkei 225 Stock Average to a four-month low last week, attracting retail investors who have traditionally used a contrarian approach, according to Hisao Matsuura, a strategist with Nomura Securities Co. in Tokyo. Retail investors tend to buy on dips and sell on rallies after having suffered heavy losses during the lost decades following the asset-bubble burst of the early 1990s, Mitsubishi UFJ Morgan Stanley’s Fujito said. The Nikkei 225 gained 0.7 percent on Friday, capping a second weekly advance.

“Individual investors’ buying could be temporary,” Nomura’s Matsuura said. “If stocks rise considerably, then they may become sellers. Their contrarian strategy is unlikely to change anytime soon.”

Foreigners may start buying Japanese stocks when U.S. Treasury yields stop rising, Mitsubishi UFJ Morgan Stanley’s Fujito said. They sold a net 36.2 billion yen of Japanese shares in the week ended on Feb. 16, following 644.6 billion yen of selling in the previous week, the biggest reduction since March 2016. Ten-year Treasury yields reached 2.95 percent on Wednesday, their highest level since January 2014.

“It may take some more time until foreign investors return to the Japanese stock market as buyers,” Fujito said. “If Treasury yields break above 3 percent, it may spur a risk-off mode in the global markets and foreigners probably won’t buy Japanese stocks. On the other hand, if yields stabilize in a range between 2.7 and 2.8 percent, they may come back.”

To contact the reporters on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net, Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net.

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Naoto Hosoda, Adam Haigh

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