BlackRock believes Japan stocks may beat all-time record

investmentnews.com:

BlackRock Inc., the world’s biggest asset manager, and Amundi Asset Management, Europe’s largest money manager, both see Japan going from strength to strength. 

Foreign investors are pouring money into the country’s stock market, whose blue-chip gauge surpassed its 1989 peak last week. Both asset managers expect earnings growth and changes in corporate governance will keep the boom going. 

“Japan’s equity rally has room to run,” wrote BlackRock’s Jean Boivin and Wei Li in a note to investors. Japanese stocks “can best their all-time highs.” 

The Nikkei 225 has gained 17% so far this year, making it the world’s best-performing major gauge. JPMorgan Securities Japan Co. said the Nikkei could rise to 42,000, an advance of a further 7%. The gains will likely bring more domestic investors into the market, according to the firm. 

“This will spur corporates to increase growth investment and improve capital efficiency, and make institutional and individual investors take more interest,” wrote Rie Nishihara, JPMorgan’s chief Japan equity strategist, in a note to investors. 

In addition to the the country’s stock market, the yen will rise against the dollar this year, making investment more profitable if equity holdings are unhedged, according to Eric Mijot, Amundi’s head of global equity strategy. 

Amundi forecasts the yen will gain to 135 to the dollar. Foreign investors face a key decision of whether or not to hedge the Japanese currency. The yen has weakened more than 6% against the dollar so far this year. 

“We should unhedge yen when we invest in Japan from an international basis,” said Mijot, who considers the currency undervalued by 40%. “We have to protect from where the risks could come.” 

The catalyst for a stronger yen