Goldman Says US Buyers Return to Japan Stocks as War Shock Fades

US investors are returning to Japanese stocks as confidence recovers from the initial shock of the Middle East crisis, according to Goldman Sachs Japan Co.’s chief Japan equity strategist.The shift, driven partly by a stabilizing yen, has spurred US capital inflows into the tech-heavy Nikkei 225 Stock Average, as reflected in its divergence from the Topix, said . With Japanese policymakers unlikely to tolerate a significant yen decline past current levels near 160 per dollar, unhedged US-based investors may be more willing to buy Japanese stocks, he added.“Japan actually looks like it’s in a reasonably solid position,” Kirk said in an April 20 interview. “The buying comes in very very quickly” once the market shifts its focus from near-term to mid-term, he said.Japanese equities are rebounding faster than anticipated despite geopolitical and energy-market uncertainty, with structural strengths including strategic oil reserves and diversified liquefied natural gas sourcing underpinning resilience, according to Kirk. The Nikkei 225 has surged about 16% this month, erasing earlier losses and outpacing a roughly 8% gain in the Topix and the S&P 500. US stock futures in early trading on Wednesday after President Donald Trump said he’s extending the ceasefire deal with Iran until talks conclude. Investors increasingly see Japan’s recent selloff, which sent the Nikkei 225 down 13% in March, as driven by global rather than Japan-specific factors, making them more comfortable re-entering the market, Kirk said. Domestic catalysts are reinforcing the case, with the earnings season, mid-term plan revisions as well as annual shareholder meetings expected to intensify scrutiny of capital efficiency and balance-sheet deployment, he added.North American investors were the only overseas group that were net buyers of Japanese equities in March, according to data by Japan Exchange Group Inc. Further support may come from policy changes, with Japan’s Financial Services Agencyexpected to finalize a renewed governance code by summer, increasing pressure on companies to unwind cross-shareholdings, deploy excess cash and improve returns, Kirk added.A sustained rerating of Japanese equities will hinge on higher return on equity, he said. While some large banks are targeting ROE of about 15%, around 44% of Topix-listed companies still generate less than 8%, he added.Risks of further selloffs remain, particularly if Middle East tensions escalate and hurt global growth. Japan, which is highly sensitive to global economic growth, could be vulnerable in that scenario, Kirk said.His team has lowered their 12-month target for the Topix to 4,200 from 4,300 since the Iran war. Still, “that’s not what people are expecting at this moment,” he said. “When foreign investors look at Japan relative to other developed markets in this type of situation, Japan’s actually has got quite a lot going for it.”