Japan is already Asia’s best-performing stock market this year, and if history is any guide, it’s gearing up for a monthly gain that will outshine global rallies.
The Topix index’s average December advance over the past decade was 3.7 percent, more than twice as much as any other month, data compiled by Bloomberg show. While the MSCI All- Country World Index can boast December gains on all but five occasions since 1988, its average increase over the past 10 years was just 1.7 percent. The Standard & Poor’s 500 Index typically gains 1.3 percent, while European equities climb 1.6 percent, the data show.
“This is the season where government policy expectations become higher, and also we’re done with the first-half earning reports and hopes for second-half profits start increasing,” said Makoto Hattori, executive officer for Marusan Securities Co. “Trading shrinks because foreign investors are on a break,” which increases volatility and enhances gains during December, he said.
The Japanese measure also typically rises toward the end of the month, with the gauge posting its highest December level in the year’s final week in seven out of 10 instances. The Topix is down 0.7 percent so far in December. The measure erased gains for the month on Friday amid disappointment in Mario Draghi’s expansion of European stimulus just as the Federal Reserve signals it’s ready to begin normalizing interest rates. The gauge added 0.7 percent on Monday, before falling 1 percent at the Tokyo close Tuesday.
“The market is correcting because its expectations for Draghi were higher, but the overall trend remains firm,” said Masaaki Yamaguchi, a Tokyo-based equity market strategist at Nomura Holdings Inc. “The Fed rate rise should weaken the yen, and there are various policies in Japan on the way so the positives are bigger. The fundamentals haven’t changed.”
The gauge’s performance during the rest of the year is less impressive, outperforming the U.S. and Europe in February, June and November with gains below 1.5 percent. It had average declines in five of the months, with the steepest losses in May, August and October.
The Topix has gained 11 percent so far this year, the biggest advance among Asian indexes and the fifth-best performance among 24 global developed markets, as a weaker yen lifted profits to a record and investors bought stocks on hopes Prime Minister Shinzo Abe’s corporate governance reforms will push companies into boosting shareholder returns. Focus is now shifting to the government’s growth strategies after Abe ordered the compilation of an extra budget and pledged to move quickly on a corporate tax cut.
“We’ll probably see what the market is expecting to occur in December,” said Yoshinori Shigemi, a global market strategist in Tokyo at JPMorgan Asset Management. “Japanese stocks are likely to end the year higher again this year.”
To contact the reporters on this story: Anna Kitanaka in Tokyo at akitanaka@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net To contact the editors responsible for this story: Sarah McDonald at smcdonald23@bloomberg.net Jeff Sutherland
