The market is betting on a rebound in Japanese stocks, with the growth rate of call options contracts for the Nikkei 225 index exceeding that of put options. The current expected PE ratio of the TOPIX index is 13 times, far lower than that of the US stock market. However, Japanese stocks still face the risk of a strengthening yen and further interest rate hikes by the Bank of Japan.
After the record-breaking decline, is it time to pick up bargains in the Japanese stock market?
The Japanese stock market experienced a record-breaking three-day consecutive decline in early August, with a total market value evaporating by $1.1 trillion. The sectors that had previously surged the most, such as semiconductors and banking, were hit the hardest, with the Nikkei 225 index falling 12% since the end of June, while semiconductor and chip stocks fell 25% and bank stocks fell 16%.
As the market corrects, the bubble part of the Japanese stock market has been squeezed out, with a total market value of approximately $6.1 trillion. This may make Japanese stock valuations more attractive. On August 11, Masayuki Murata, an investment executive at Sumitomo Life Insurance, said that given current valuations, "we can say that we are at a level where we can buy on dips." Investors believe that the stock market rose too fast last month, but after the sell-off, the market gradually returned to normal levels.
The expected P/E ratio for the Nikkei 225 index is currently 13 times, while the S&P 500 index is 20 times. The valuation of the Japanese chip sector has also fallen from 35 times at the beginning of the year to 21 times.
According to data from the Japanese derivatives market, the market sentiment for Japan is still positive, with the growth rate of the open interest of Nikkei 225 index call options exceeding that of put options, indicating that the market's bet on a rebound is increasing.
Recently, the sudden rate hike by the Bank of Japan caught the market off guard, but after the sharp drop in Japanese stocks, the Japanese authorities reassured the market that monetary policy would not be tightened quickly, avoiding further market turmoil. At the same time, major global technology companies continue to push ahead with multi-billion dollar artificial intelligence infrastructure investment plans.
The turbulence in the Japanese and even global stock markets seems to have temporarily come to an end. However, the market still faces the risk of a stronger yen, especially if the Bank of Japan further raises interest rates while the US Federal Reserve relaxes policy.
At the same time, the global geopolitical situation remains tense, and the US presidential election is also approaching. Although the Nikkei Volatility Index has fallen from Monday's intra-day high of 85 to 45, it is still far above the long-term average of 22.
Editor/ping