Japan Stock Rally Signaled by Europe Investor Flows, SocGen Says

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(Bloomberg) -- Japanese equities may be primed to rally, Societe Generale SA analysts say, citing a 15-year pattern that looks at European investor flows.

A surge in outflows from Europe-based funds has reached an extreme level that’s historically preceded a rebound in Japanese shares, according to research from the French bank. Net outflows are now more than two standard deviations from the mean, it showed.

“We would expect a reversal soon,” wrote Alain Bokobza, SocGen’s head of global asset allocation. “That should help push Japanese equities higher.”

A 19-week streak of inflows from global investors into Japanese stocks came to an end last month, when investors pulled the most on record from funds investing in the country’s shares, according to EPFR Global data. Japan’s Topix Index has fallen about 2 percent this year, in part hurt by a stronger yen and a domestic political scandal that has engulfed Prime Minister Shinzo Abe.

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