Topix May Surge 19% by April on Foreign Inflows: Chart of Day

The longest streak of net foreign inflows to Japan’s stock market since 2005 may boost the Topix index 19 percent by the end of April, if history is a guide, according to Monex Group Inc.

The CHART OF THE DAY shows the Topix and net investments from overseas. Foreigners were buyers of Japanese stocks for 16 weeks to Feb. 18, the longest continuous period of inflows since the 26 weeks through Dec. 9, 2005, data compiled by Bloomberg show. The latest streak began as the U.S. Federal Reserve announced in the first week of November that it would buy $600 billion of Treasuries. The 2005 stretch, during which the Topix rose 38 percent, began as the government and the Bank of Japan said the economy was recovering after a slump.

“The macro economy and the market cycles are similar to those of 2005,” said Takashi Hiroki, chief strategist at Monex in Tokyo. While the net investment report for last week, due out today, is expected to show a net outflow, “the foreign investors’ buying trend won’t change, even if there is a break,” he said.

The Topix rose 20 percent in the 16 weeks from Oct. 29 to Feb. 18. If the gauge follows a similar pattern to 2005, then it will rise to 1,119 by the end of April, Hiroki said. The index closed at 942.87 yesterday.

While the 2005 streak of net purchases by overseas investors ended in the week to Dec. 9 that year, the trend continued, and the Topix rose to a 15-year high of 1,783.72 on April 7, 2006. That was a 55 percent advance from end of the second week of June 2005, just before the foreign buying streak began.

“Funds tend to pour into Japanese stocks because people think they’re sensitive to the world economy and there is little fear of inflation,” said Gentoku Kiyokawa, a fund manager at BNP Paribas Investment Partners in Tokyo. Inflows will continue as long as investors hold the view the global economy is on a path to recovery, Kiyokawa said.

(To save a copy of the chart, click here.)

To contact the reporters on this story: Satoshi Kawano in Tokyo at skawano1@bloomberg.net; Yuki Yamaguchi in Tokyo at yyamaguchi10@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.

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