In a notable shift, foreign investors offloaded the most significant amount of Japanese stocks since March last week, indicating a growing sense of risk aversion in the market.
Data from Japan Exchange Group Inc. revealed that they sold a significant ¥913 billion ($6.1 billion) worth of equities, more than three times the previous week’s sell-off.
This substantial sell-off marks the most extensive net sales since the week ending March 10, when the collapse of Silicon Valley Bank jolted the global market.
Japan’s Topix index felt the impact, experiencing a 2.2% decline last week, while the US S&P 500 Index suffered a 2.9% loss.
The surge in selling suggests a dwindling appetite among foreign investors, following a massive ¥6.1 trillion in purchases in the last quarter. After a robust rally, the market’s increasing expense appears to be a deterrent.
Toshiya Matsunami, Chief Analyst at Nissay Asset Management, highlighted the influence of rising US interest rates on sentiment.
“A rise in US interest rates is hurting sentiment. Foreign investors tend to reduce risk exposure and profit from assets that have done well when US stocks are falling.”
Earlier this month, the Topix index reached a 33-year high, fueled by optimism about a potential return of inflation in Japan and strengthened economic growth. This positive outlook was further enhanced by expectations of governance reforms and the benefit of a weakened yen for exporters.
However, this surge in optimism has led to higher valuations for the Japanese market, with the Topix now trading at 14.8 times expected earnings, a premium over the MSCI Asia-Pacific index, which is at 13.3 times.
This is a significant shift from the beginning of the year when the Topix had a lower multiple than the Pan-Asian index.
Factoring in futures contracts, overseas investors sold 1.25 trillion yen of equities, marking the highest weekly sell-off since March.
On the flip side, Japanese individual investors made a net purchase of ¥661 billion, the highest since late March.
This scenario underscores the evolving dynamics of the Japanese market, where external factors and changing investor sentiment play a crucial role in shaping investment patterns and market trends.