Japan's domestic investors discover Tokyo's stock market rally

05/07/2013 6:58 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

It looks like Japanese investors have decided to start putting some money into Japanese equities. That—if the trend continues past April--could push the Tokyo market--and my Japan stock picks--another leg higher.

Up until April, Japanese investors were willing to let the Tokyo market rally without them. But apparently—with the Nikkei 225 index up 64% from its November 13 low through the close on May 7—they’ve seen enough.

Why let overseas investors, who have been the big buyers in the rally, have all the fun?

In April inflows into domestic Japanese mutual funds came to 440 billion yen (or $4.7 billion at 95 yen to the U.S. dollar.) That’s the biggest monthly inflow in 13 years.

Japanese households continue to sit on a dragon’s hoard of cash. An increase of 1% in domestic investors’ allocation to equities would amount to 15 trillion yen ($158 billion at 95 yen to the U.S. dollar.)

Surveys by Japanese brokerage and investment bank Nomura indicate that Japanese investors remain skeptical—and who can blame them after the two-decade-long under performance of Japanese stocks. Most investors, according to Nomura, would cash out once gains hit double digits.

The Nikkei has a way to go before investors who jumped into this rally in April see those kinds of gains. But domestic Japanese sentiment should be a reminder that Japan is a trade on a weaker yen and not a long-term holding.

Yesterday, as the Tokyo market reopened after two trading session of holidays, the Nikkei 225 index jumped 3.55%.

I own the ADRs (American Depositary Receipts) of two Japanese stocks in my Jubak’s Picks portfolio http://jubakpicks.com/ . Toyota Motor (TM) is up 17.4% since I added it to the portfolio on February 5, 2013, and Mitsubishi UFJ Financial (MTU) is up 14.6% since I added it on March 26. I think both have more room to run here, especially since I think the yen will break below 100 to the dollar in the not too distant future.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , I liquidated all my individual stock holdings and put the money into the fund. The fund did own shares in Mitsubishi UFJ and Toyota Motor as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/
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