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Executive summary:
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Looking beyond the index – winners and losers in a high dispersion environment
After reaching a record high of ¥72,366.34 on June 25 (based on closing prices; the same applies hereinafter), the Nikkei Stock Average has tended to weaken and remain range-bound. During this period from June through to mid-September, WTI crude oil futures rose 47.1%, while Brent crude oil futures rose 44.5%, highlighting the sharp increase in crude oil prices globally.
As a major oil and energy importing economy, Japan has undoubtedly been negatively affected by this shift. Amid inflation concerns and other factors, Japan’s 10-year government bond yield rose 40.8 basis points (bp; 1 bp = 0.01%) and has now exceeded the symbolic 3% level.
Such increases in crude oil prices and long-term interest rates are presumed to have contributed to the Nikkei 225’s weak performance after it reached a record high. In this report, therefore, we examine the performance of sectoral, style, and other indices besides the Nikkei 225 from June 25 through September 15, in order to explore how Japanese equities as a whole performed amid rising crude oil prices and long-term interest rates. The story is noticeably more complicated than might appear simply by looking at the headline index performance; we see this as encouraging for investors willing to commit to stock selection as an approach to find alpha from markets that may trade sideways for some time.
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Richard HAXE
Managing Director, Head of Business Development
Alex BARRY
Executive Director, Head of Distribution - UK and Ireland
Chloé CHOQUIN
Director, Business Development & Client Relations
Thomas CARTWRIGHT
Director, Business Development & Client Relations
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