Japanese shares yesterday rose for a second day, erasing the losses from Christmas Day, as the TOPIX posted its biggest advance in two years.
The broader benchmark and the Nikkei 225 Stock Average were bolstered by gains in electronics makers after US stocks staged one of the biggest rallies of the nine-and-a-half-year bull market as holiday sales kicked off in earnest.
The TOPIX climbed 6.1 percent yesterday and on Wednesday, after dropping 4.9 percent on Christmas Day. Japan has one more day of trading today before a four-day holiday next week.
The resurgence follows a global equity rout in the wake of renewed turmoil in Washington that dragged Japanese stocks into a bear market earlier this month.
The MSCI Asia Pacific Index rose 2 percent in afternoon trading in Tokyo for its biggest advance in eight weeks. Crude oil prices jumped more than 8 percent on Wednesday.
“Year-end shopping demand is robust, a sign that the US economy is still on a solid growth track,” said Mitsuo Shimizu, an equity strategist at Aizawa Securities Co in Tokyo.
“The panicky feeling in markets has receded. When corporate earnings are put into perspective, I can only say that Japanese shares are way too cheap,” he said.
Market participants, who unanimously agree that local equities are inexpensive in terms of valuation, are cautiously forecasting that the rebound could stay largely intact next month.
Kiyoshi Ishigane of Mitsubishi UFJ Kokusai Asset Management Co said he expects buying to persist for two to three weeks, despite possible “ups and downs.”
Technical indicators have been signaling that markets have been oversold.
The 25-day Toraku index, which compares the numbers of advancing and declining stocks on the TOPIX, stood at about 68 on Wednesday, remaining under 80 for seven straight days, a level at which traders consider that shares are due for a rebound.
The TOPIX trades at about 11.8 times estimated earnings, near the cheapest level since 2012.
Japan’s second-biggest brokerage said that the worst is probably over for Japanese stocks, as long as the global economy avoids slipping into a recession.
“It is probably rational to think that prices have reached the bottom,” Daiwa Securities Group Inc chief executive Seiji Nakata said in an interview, a day after the Nikkei 225 Stock Average slid into a bear market.
Still, not everyone was convinced that yesterday’s rally could last.
“Stocks fell too much until now,” said Kazuyuki Terao, chief investment officer for the Japan unit of Allianz Global Investors. “The concern surrounding corporate earnings will linger quite a bit. I don’t think we’re entering a phase where stocks are set for a rebound from here. There’s quite a bit of concern surrounding cyclical sectors like technology companies and machinery” for both the US and Japan.
By at least one measure, the surge has already pulled Japanese equities out of oversold territory.
The relative strength index on the TOPIX was about 38, exceeding the 30 mark for the first time in five days. A level below 30 indicates to some investors that the market might be poised to rise.
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