"The speed of U.S. capital inflow into Japan is the fastest since the implementation of Abenomics"! Goldman Sachs stated: The influx of U.S. capital means a shift in Japanese stock style towards growth
Goldman Sachs' chief equity strategist in Japan stated that U.S. funds are flowing into Japan at the fastest pace since "Abenomics," primarily targeting the technology and AI sectors. This trend is driven by over 30% dollar returns in Japanese stocks this year, which could trigger a significant shift in market style from value stocks to growth stocks. However, amid the market's high enthusiasm, Citigroup warned that Japanese technology stock valuations have become overheated, even surpassing Mag 7, advising investors to be cautious of short-term pullback risks
A capital migration led by American investors is unfolding in Japan. Goldman Sachs' latest observations show that U.S. funds are accelerating their inflow into the Japanese stock market, reaching a peak not seen since the "Abenomics" era.
The growth rate of U.S. fund inflows is the fastest we have seen since Abenomics.
Bruce Kirk, Goldman Sachs' Chief Japan Equity Strategist, stated in a Bloomberg interview on November 6 that the active participation of American investors in the Japanese stock market has risen to its highest level since October 2022.
Behind this influx of funds is the astonishing return of Japanese stocks when priced in U.S. dollars. Thanks to a 2.5% appreciation of the yen and the optimism brought by Prime Minister Kishida Fumio's stimulus policies, the Nikkei 225 index has risen by about 30% this year in U.S. dollar terms, far exceeding the S&P 500 index's 14% increase. According to data from the Japan Exchange Group, foreign investors net purchased 384 billion yen (approximately $2.5 billion) worth of Japanese stocks and futures in the last two weeks of October alone.
Goldman Sachs strategists believe this could mark a turning point for Japanese stocks, with market drivers potentially shifting from value stocks to growth stocks. The investment preferences of American investors may become a key variable in changing the style of the Japanese stock market.
“The participation of more U.S. funds is significant, as they tend to be attracted to themes related to technology and artificial intelligence,” emphasized Bruce Kirk.
He believes that as global investors continue to seek diversified allocations, and their net positions in Japanese stocks are still distant from the peak during "Abenomics," there is still room for further inflow of overseas funds in the future.
Tech Stock Valuations Exceed Mag 7, Japanese Stock Valuations Overheated
However, the market's enthusiasm also comes with risks. Just as U.S. capital accelerates its inflow, Citigroup recently issued a warning in a report, stating that Japanese tech stocks have become overheated.
Wall Street Article reported that Citigroup analysts pointed out that the price-to-earnings growth ratio (PEG) valuation of the Japanese tech sector has even surpassed that of the U.S. "Magnificent Seven," but its profitability has not kept pace, leading to a decoupling of stock price movements from fundamentals.
The bank believes that while the long-term outlook is optimistic, the market may face a "healthy" correction in the short term, with the Nikkei index potentially retreating to 48,000 points.
This view resonates with Bruce Kirk's observation that "the Nikkei index has entered an overbought zone, and a market consolidation is not unexpected."
