Japan's Nikkei Records Biggest Annual Rally in Almost 2 Decades
Dec. 30 (Bloomberg) -- Japan's Nikkei 225 Stock Average closed out the year with its biggest annual rally in almost two decades, as accelerating economic growth and evidence that deflation will soon end lured a record amount of overseas buying.
``The market was so strong, I certainly didn't imagine stocks would surge this much at the start of the year,'' said Tomokatsu Mori, who helps oversee $1 billion at Fukoku Capital Management Inc. in Tokyo. ``Foreign investors have been betting on Japan's economic recovery and that's why they are increasing their holdings of domestic-demand related stocks.''
Today, indexes gave up some gains as a U.S. report heightened concern a slowdown in the U.S. housing market may lead to slower economic growth in Japan's biggest export market.
For the year, the Nikkei surged 40 percent, its biggest gain since climbing 44 percent in 1986. The broader Topix jumped 44 percent, the most since 1999.
Today, the Nikkei slipped 1.4 percent to end the year at 16,111.43. The Topix index lost 0.8 percent to 1649.76. The Tokyo Stock Exchange closed at 11 a.m. in a shortened session before the New Year.
Almost all of the Nikkei's 2005 gain has come in the second half of the year. The 39 percent second half surge is the biggest since 1972, when Japan, under Prime Minister Kakuei Tanaka, established diplomatic relations with China.
Koizumi Effect
For the first time since 1991, consumer spending and business investment spurred an expansion rather than exports and government spending. In August, reports showed the economy grew three times as fast as forecast and the central bank signaled the nation's more than seven-year bout of deflation was nearly over.
That boosted property stocks and retailers, which were among to Topix's 10 best performing industry groups this year.
``Expectations over Japan's economic expansion next year are quite high,'' said Mitsushige Akino, who oversees $190 million at Ichiyoshi Investment Management in Tokyo.
At the same time, Prime Minister Junichiro Koizumi called a nationwide election that handed his party more than two-thirds of the seats in the lower house of parliament.
``Market sentiment changed completely in the second half, triggered by Koizumi's reelection,'' Fukoku Capital's Mori said.
A government report a month later showed that land prices in Tokyo, which have fallen 80 percent since peaking in 1990, rose this year for the first time in 15 years.
Oversees Buying
Koizumi is credited with reviving Japan's banks and its property market following the economic stagnation caused by the bursting of the 1980s ``asset bubble economy.'' The landslide victory gave Koizumi a mandate to pass legislation to implement economic reforms, helping bolster confidence among overseas investors that the economy's recovery is sustainable.
This year, overseas buying of Japanese equities topped 10 trillion ($85 billion) in a year for the first time ever, stock exchange figures showed yesterday. The previous record for foreign buying was 9.13 trillion yen in 1999.
A measure of 46 real estate stocks doubled in 2005. Tokyu Land Corp., Japan's fourth-largest developer, almost tripled this year. Mitsubishi Estate Co., the nation's biggest developer by market value, doubled in 2005.
Optimism that assets prices will rebound in the coming year were bolstered this month after the Nihon Keizai said American International Group Inc., the world's largest insurer, will spend more than $3.4 billion to buy property in central Tokyo.
Retailers
Retailers jumped this year as growth in the world's largest economy showed signs of accelerating. The economy will expand by 2.7 percent in the year ending March 2006, after growing by 1.7 percent last fiscal year, the government said this month.
Matsuya Co., a Tokyo-area department store operator, posted a fourfold jump, while Yamada Denki Co., which runs a chain of electronics shops, more than tripled. Takashimaya Co., Japan's largest department store operator, climbed 92 percent.
The company will open a consumer electronics store in the heart of the Tokyo shopping district of Shibuya as early as 2007, its first attempt to open outlets adjacent to key train stations in large cities, the Nikkei reported yesterday.
``Better prospects for Japan's economy were at the heart of the surge in the second half,'' said Fukoku Capital's Mori. ``Consumer spending is increasing and the labor market underwent great change with companies expanding their hiring. It was a year for domestic-demand stocks.''
To contact the reporter on this story:
Makiko Suzuki in Tokyo at msuzuki13@bloomberg.net;
Michael Tsang in Tokyo at
mtsang1@bloomberg.net.
