Foreign interest in Japanese stocks is back at levels not seen since the world-beating rally of 2013, if applications for Merrill Lynch’s equity conference in Tokyo are any guide.
The number of foreign investors coming to the Bank of America Corp. unit’s annual event in September is up 63 percent from 2014 to near the record set in Prime Minister Shinzo Abe’s first full year in office, when the Topix index capped its steepest gain since 1999. There’s been little impact on attendance from the global equity sell-off that intensified last week, said James Seddon, a spokesman for the brokerage. Asset managers are most interested in meeting Internet companies such as Rakuten Inc. and Yahoo Japan Corp., said Merrill’s Sakura Nishimoto.
“Exporters were more popular before, but now we’re seeing a shift toward domestics,” said Nishimoto, head of Japan research marketing and corporate access at the brokerage in Tokyo. “Investors used to look at just the largest companies. Now they’re looking at Japan in more detail.”
Of the five companies where investors made the most requests to meet executives, three are Internet firms on expectations that higher domestic consumption will boost online shopping, according to Merrill Lynch. Also in the top 10 are tourism-related shares, including Japan Airport Terminal Co. and Laox Co., after inbound visitors to the country reached a record.
Investors are looking beyond Japan’s exporters as the yen stabilizes and the global economic outlook dims, betting instead that domestic demand will rebound. Private consumption slipped 0.8 percent in the second quarter from three months earlier. Drugmakers and retailers are among the industries leading gains on the Topix this year, while manufacturers of consumer electronics and cars are some of the worst performers.
Toyota Motor Corp. provided the biggest boost to the Topix in the first two years under Abe, surging 89 percent. The carmaker’s shares are down 7.4 percent this year. Mazda Motor Corp., which surged 236 percent in the two years following Abe’s election victory, is one of the biggest drags on the Topix in 2015. Yahoo Japan is up 8.1 percent this year, while Rakuten slid 2.9 percent.
Even after a global stock selloff sent Japan’s benchmark index into a correction last month, the Topix remains 5 percent higher this year. That compares with a 4.2 percent decline for the Standard & Poor’s 500 Index through Monday.
“In 2013, foreign investors who looked at Japan for the first time in a while mainly looked at large companies,” Nishimoto said. “There was concern about the sustainability of the Japanese share rally. This year, with stocks continuing to outperform, they’re seeing you can’t ignore Japan, and you have to do your research to invest in it properly.”