(Bloomberg) — Japanese equities shed $1.1 trillion in value as they kicked off August with a record three-day loss. For bullish investors, that’s providing a fresh reason to buy what has been one of 2024’s hottest trades.
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The stocks that were hit the hardest are the ones that had soared the highest, bringing prices down to more attractive levels. The valuation improvement campaign that has boosted the international appeal of Japanese shares continues apace, and some of the froth has been removed from the now $6.1 trillion market.
While the Bank of Japan’s sudden interest rake hike last month caught traders off guard, the central bank followed up with comments that it won’t tighten so quickly as to risk further market turmoil. That’s help put a lid on sudden gains in the yen, removing a key threat to the stock rally.
In terms of major global catalysts, the latest US labor-market data helped ease concern about whether the Federal Reserve is easing fast enough to head off a potential recession. And the world’s major technology companies are steaming ahead with plans to spend billions on artificial intelligence infrastructure.
“It’s not like we had a major economic or financial crisis,” said Tetsuro Ii, chief executive of Commons Asset Management Inc., adding that it will probably take just two or three months for the market to fully recover. Investors now recognize that monetary policy in Japan and the US has “entered a new stage,” having taken this as a cue to exit crowded positions.
The benchmark Topix is down 12% since the end of June. Stocks that had outperformed earlier in the year have suffered more. An MSCI Inc. gauge of the nation’s semiconductor-related stocks — whose AI-fueled surge was a key driver of this year’s rally — has fallen 25% in that span. A measure of banks, which had surged on anticipation of higher rates, is down 16%.
“I wouldn’t call it a bubble but the market just got carried away,” said Toru Yamamoto, chief strategist at Daiwa Asset Management Co. “When you need to cut risks, the…
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