Foreign investors are turning away from stocks
TOKYO: Stock markets have been inundated with investment funds due to global monetary easing since the start of the Covid-19 pandemic, but stock prices of Japanese companies have been slow to recover.
Japanese stocks are increasingly excluded from global stock indexes, and if this trend continues, it could affect corporate fundraising.
Japanese companies are being tested to see if they can increase their growth investments, which would be lower than foreign companies, and attract more money to continue growing.
In November, Morgan Stanley Capital International, Inc (MSCI), a leading provider of financial services in the United States, reviewed some issues of its stock index, which is used by investors around the world as a guide to managing funds.
Fifteen Japanese companies were removed from the index, including well-known companies like Yamada Holdings Co, Casio Computer Co and NH Foods Ltd.
Benefit One Inc and Open House Co were the only newly selected Japanese companies.
The MSCI index is calculated from selected stocks in around 70 countries and issues are reshuffled twice a year.
Excluding Japanese companies means “overseas money is coming out of Japan,” according to an official at a large securities firm.
Indeed, the world’s brokerage firms sell MSCI index linked investment trusts with assets totaling 16 trillion US dollars (approximately 1.8 trillion yen or 67.5 trillion RM).
According to an estimate by Daiwa Securities Co, MSCI index-linked investment funds sold around 220 billion yen (RM 8.16 billion) shares of the 15 companies at the end of November due to the reshuffle.
It was the third time in a row since November last year that more than 10 Japanese companies were excluded from the MSCI index, and the highest number since 20 companies were eliminated in May 2011, immediately after the great earthquake. land in eastern Japan.
The cuts were boosted by falling stock prices caused by the slow recovery in trading performance of Japanese companies.
Stocks in the MSCI Index are deemed to be selected on the basis of their market capitalization, among other factors.
Global stock markets, especially US markets, are increasing their market capitalization through stock rallies after global monetary easing brought liquidity to the country.
The Nikkei 225 ranks poorly compared to these global stock markets. While up 70% at the end of November, from lows in March 2020, when stock prices were lowest amid the pandemic, the 30-stock Dow Jones industrial average was up 90. %. U.S. stocks, represented by Google LLC, Amazon.com, Inc, Facebook Inc (now Meta Platforms, Inc) and Apple Inc – dubbed GAFA – have grown through aggressive investments in digitization and other areas, and investors rushed to buy their shares.
According to analysts, however, Japanese companies have missed out on growth opportunities by not investing the money they have accumulated, and their low earning capacity is reflected in their stock prices.
The most recent depreciation of the yen and the appreciation of the US dollar are also accelerating the trend. Foreign investors value stock prices converted to US dollars. The dollar-based Nikkei 225 hit its lowest level of the year this month.
Soaring prices for raw materials bought abroad are seen as further pressure on Japanese company profits amid the depreciation of the yen. – News from Japan / ANN
Foreign investors account for 70% of the trading volume on the Tokyo Stock Exchange, and they sold 3.3 trillion yen (122.44 billion RM) more than they bought last year. Net sales also amounted to around 250 billion yen (9.27 billion RM) in the last week of November alone.
The demand for funds for decarbonisation is also increasing. If Japanese companies still fail to attract the attention of foreign investors, they may find it difficult to raise funds in the stock markets.
Government support is also needed to create an environment that attracts investment in business. Compared with the United States, Japan’s fiscal spending in growth areas remains low.
“It is important to create an environment that facilitates the entry of companies into promising sectors, for example by allocating public funds to areas where investment is risky for companies only,” said Shingo Ide, senior researcher at the NLI Research Institute. – News from Japan / ANN