Global selloff in Japan leads to Nikkei index dropping 12%, creating potential buying opportunities

From Morningstar: 2024-08-12 04:45:00

Japan’s stock market was at the center of a global selloff, with the Nikkei index losing 12% in one trading session. Market watchers are now monitoring Japan’s stock and currency markets, as well as monetary policy for the rest of the year. The volatility was triggered by a sudden appreciation of the Japanese yen against the dollar.

The selloff followed strong years of performance for Japanese stocks, helped by the yen hitting multi-decade lows. UK investors in Japanese funds are still mostly in positive territory for the year, but further market weakness could erode these gains. Portfolio managers like Richard Kaye see the selloff as a correction from irregularities in the past two years.

The recent market drawdown could provide buying opportunities for overseas investors, especially those previously unable to invest due to high valuations. Hiroyuki Ueno believes Japanese companies may initiate share buybacks using their cash reserves. Domestic buyers could also show interest, following an increase in the upper limit of the NISA tax-exemption scheme.

Investors in Japan woke up to higher rates as the Bank of Japan raised interest rates for the second time in years. Portfolio manager Carl Vine sees the volatility as an opportunity to find undervalued stocks, taking advantage of the market turmoil. The normalization of interest rates in Japan has been anticipated for several years.

The stronger yen is expected to create a divided stock market in Japan, benefiting some stocks more than others. James Salter predicts a bifurcated market that will favor domestically-oriented portfolios over globally exposed ones. Despite the selloff, he believes access to leading Japanese companies may improve at lower prices.



Read more at Morningstar: After the Crash, Where Next for Japan Investors?