Retail Investors Could Be Drivers of Next Leg in Japan Equity Rally

In Japan, stocks are extending the bullishness accrued over the past couple months to start 2024. Some market observers believe that scenario can continue with contributions from the country’s retail investors.

That could be a positive signal for exchange traded funds such as the WisdomTree Japan Hedged Equity ETF (DXJ). Year-to-date, DXJ is higher by 21.21%, beating the S&P 500 by a margin of better than 2-to-1. The Bank of Japan seems a devoted fan of ETFs and institutional investors, propelling the rally by Japanese stocks.

Conversely, retail market participants haven’t been as active with Japanese equities. That's par for the course, as those investors have long favored other asset classes due to the lengthy underperformance of stocks in their home country. After all, it took the Nikkei about three decades to reach and set new records.

Retail Investors Coming Off the Sidelines in Japan

Another recent note for the upside notched by DXJ and Japanese stocks is that Japan is finally experiencing much-needed inflation. The subsequent wage gains for workers there could catalyze the involvement of smaller investors with stocks.

Alongside such real income growth, the BOJ is likely to be looking for consumer surpluses to be allocated not to building up cash deposits, such as was the case during Japan’s ‘lost decades’, but to increasing their consumption. This would assist GDP growth and also put money to work in financial markets,” noted Naomi Fink, global strategist at Nikko Asset Management.