(Bloomberg) -- A markets chief at one of Japan’s biggest life insurers is expecting the nation’s shares to break more records as political uncertainties fade after key elections.
The Nikkei 225’s all-time high of 42,224.02 set in July will probably be “just a passing point,” said Kenichi Kuga, head of the global equity and fixed income investment department at Japan Post Insurance Co. Once elections for US president and Japan’s powerful Lower House of parliament are out of the way, overseas investors will be more likely to buy Japanese stocks that have lagged the broader market, he said in an interview.
The Bank of Japan’s historic shift this year from radical monetary easing to two interest-rate hikes has sparked volatility in the nation’s securities market as investors speculate on the BOJ’s next move. The yen has also swung sharply as traders wager on Federal Reserve rate cuts, though economists say Japanese companies have become less vulnerable to exchange-rate moves by basing more operations overseas. The corporate sector is facing pressure from policymakers as well to take steps boost their shareholder value.
“In my day-to-day dialog with Japanese companies, I can really feel the changes they are making to improve capital efficiency, and their sensitivity to exchange rates is also decreasing,” said Kuga, whose firm manages ¥60.8 trillion ($407 billion) in assets. “So even if the yen appreciates, the negative impact on their business performance will be minimal.”
The buying momentum of overseas investors for Japanese shares this year is still less than in 2012 when late Prime Minister Shinzo Abe unveiled his Abenomics program of economic stimulus, so there’s still room to buy from a supply and demand perspective, Kuga said.
Kuga expects the BOJ to raise interest rates once this year. That’s in line with forecasts of economists surveyed by Bloomberg, though it’s in contrast with the swaps market, which sees only about a 30% chance of a 25 basis-point rate increase by the end of of 2024.
On the political side, if the ruling coalition of the Liberal Democratic Party and the Komeito loses its majority in the Lower House election, there is a possibility that Japanese stocks will be sold off due to concerns about political instability, but unless this happens, the impact on Japanese stocks won’t be great, he said.
Bonds account for 70% of the insurer’s portfolio, while equities make up about 7% of the total. In 2016, the company set up a team to manage stocks, and it now actively manages just under 20% of the shares it holds. It concentrates its investments in around 120 stocks.
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