Stock market in Japan soars in the 1st semester; see how to invest – 7/9/2023 – Market

The Nikkei 225 stock index, which brings together the largest Japanese companies with shares traded on the Tokyo Stock Exchange, in Japan, showed one of the highest positive returns among the main developed markets in the first half of the year.

From January to June, the Japanese Stock Exchange rose 27.2% according to Bloomberg data, just behind the Nasdaq index, which brings together the largest technology companies in the United States and which advanced 31.7%. It was the Nikkei’s highest for a first half since 2013.

Interest rates, which are still extraordinarily low at a time when major economies are tightening monetary policies to combat inflation and economic reforms to encourage investment and shareholder remuneration by companies listed on the Stock Exchange, are cited by specialists among the reasons that justify positive investor sentiment towards the Japanese stock market.

Also contributing to the recent massive inflow of resources into shares on the Tokyo Stock Exchange was the bet that North American mega-investor Warren Buffett made on Japanese companies specialized in trading raw materials (trading).

Considered a compass for the market, any financial movement of the “oracle of Omaha”, as Buffett is known, is closely monitored and followed by many investors around the globe.

In the Brazilian market, there are some options available to investors interested in exposing a part of their portfolio to the Japanese stock market.

In recent years, banks and asset managers have started to offer BDRs (Brazilian Depositary Receipt) of ETFs (Exchange Traded Fund), a financial instrument whose proposal is to replicate the portfolio of a certain global stock index originally traded abroad.

BlackRock works with two ETF BDRs that track the MSCI Japan stock index. The iShares MSCI Japan ETF, traded under the code BEWJ39 on B3, was launched in November 2020 and follows the fluctuation of shares traded on the Japanese Stock Exchange and also the variation of the yen against the dollar.

There is also the iShares Currency Hedged MSCI Japan ETF, code BHEW39, ​​which was launched in April 2023 and tracks only the variation of shares, without exposure to the exchange rate.

In September last year, JP Morgan Asset launched the BDR of the JP Morgan Betabuilders Japan ETF (BBJP39), which also seeks to follow the performance of a basket with the main shares of the Japanese Stock Exchange, as well as the currency of the Asian country.

Giants such as automaker Toyota, media company Sony and financial group Mitsubishi UFJ Financial are among the top positions in the funds, which charge management fees ranging from 0.19% to 0.50% per annum.

When considering the investment, in addition to the cost, the impact of the exchange rate must also be taken into account.

International manager focused on Asia at Gap Asset, Marcelo Lyra says that the Japanese government has encouraged the devaluation of the yen in order to increase exports by companies in the country, which resulted in a drop of around 9% of the Japanese currency against the dollar in the first half and 18% against the real, according to data from Bloomberg.

Due to these factors, the return in reais of the Japan ETF BDRs is between 1% and 4% in the year until June.

Director of the institutional segment and iShares ETFs at BlackRock Brasil, Paula Salamonde says that the still high interest rate ends up inhibiting the demand of Brazilians for more sophisticated investment alternatives. But she points out that, for those investors with a more daring profile who are looking for international exposure, an allocation in the Japanese market at this moment makes perfect sense.

“Japan is an important market, it represents a strong economy and we understand that it would have to have an instrument available to the investor”, says the executive.

Lyra of Gap Asset adds that, in contrast to major developed economies, Japan’s central bank has adopted a more lenient stance on inflation, keeping interest rates low in order to stimulate an economy that has suffered in recent years from deflation. and low growth.

Inflation in Japan has hovered around 3% on an annual basis, against the 2% target. Despite the rise in prices, the BoJ (Central Bank of Japan) has kept the interest rate unchanged at -0.1%. With a traditional saving culture of the Japanese population, the Asian country faced a problem of falling consumption that caused a sharp drop in prices and prevented a more robust growth of the economy during the last decades, explains Lyra.

With inflation on the rise, which reflected an increase in consumption by the population, Japan’s economy grew more than initially thought between January and March. The country’s GDP (Gross Domestic Product) had an annualized expansion of 2.7% in the first quarter, well above the average forecast of economists, who expected an increase of 1.9%.

“What is happening there is a reflection of inflation and the weakening of the yen among companies that are relatively cheap”, says Eduardo Ichikawa, professor of monetary and international economics at Faculdade Presbiteriana Mackenzie Rio.

Executive responsible for the ETFs area of ​​JP Morgan Asset Management in Latin America, Carlos Brito says that the corporate reforms promoted in the Japanese capital market are also among the reasons that justify the optimism of investors with the shares in the region.

Authorities have sought to encourage listed companies to invest the volumes retained in cash to expand operations or to buy back shares traded on the Exchange, which tends to generate a positive effect on quotations.

“Japanese stocks are considered very cyclical and sensitive to global growth,” says Brito. He points out that the sectoral composition of Japanese companies on the stock exchange demonstrates this characteristic. “In our ETF, about 1/4 are very export-oriented industrial companies, another quarter are consumer discretionary goods companies and 10% are financial companies”, says the expert.

He adds that the yen has depreciated in recent months by around 30% against the Chinese renminbi, “which is relevant as Japan now exports more to China than to the United States.”

In the evaluation of the Mackenzie Rio professor, the tendency is for the inflationary process to gradually lose strength, converging towards the 2% inflation target, with stock prices experiencing some stabilization.

Lyra, from Gap Asset, says that, so far, there are no signs of major changes in the direction of monetary policy by the Japanese Central Bank, which tends to keep the region’s economy heated. After the strong rise of the Japanese Stock Exchange in the first half, however, the upward trajectory of stock prices tends to be more contained, says the manager.

Be that as it may, the outlook for Japanese equities has piqued the interest of mega-investor Warren Buffett. In June, he added exposure he already had to five major Japanese trading companies — Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo.

According to the billionaire, the shares have a positive perspective of growth in the coming years and are being negotiated at very discounted prices.

“Berkshire Hathaway’s intent [empresa de investimento de Warren Buffett] remains to hold its Japanese investments for the long term. Depending on the price, Berkshire Hathaway can increase its holdings up to a maximum of 9.9% in any of the five investments [frente aos atuais 8,5%]”, says a statement released by Buffett’s company at the end of June.