For the first year since 1989, foreign investors sold Japanese stocks and missed a rally.

Overseas investors, who account for more than two-thirds of trading in Tokyo, cut holdings in 2015 even as the Topix index climbed 8.9 percent in dollars and 21 percent in euros. It had been 2½ decades since foreigners last offloaded shares amid annual gains, data compiled by Bloomberg show. As traders dumped $1.9 billion, Japan’s own pension funds, asset managers, central bank and companies took their place.

For Goldman Sachs Group Inc., the home team sending shares higher can only be good, with domestic inflows showing equities can rise without substantial weakness in the yen. Overseas investors will return in 2016 on a favorable outlook for earnings and improved corporate governance, according to Sompo Japan Nipponkoa Asset Management Co.

Overseas investors’ selling “was obviously a mistake,” said Kathy Matsui, vice chairman and chief Japan strategist at Goldman Sachs in Tokyo.

The Topix capped a 9.9 percent gain in local-currency terms last year, its fourth straight annual increase. Combined with the yen’s resilience, that meant that the Topix outperformed the Standard & Poor’s 500 Index in dollars for the first time since 2008. The measure’s gain in euros was triple that of the Stoxx Europe 600 Index, even as the European benchmark completed its best year in a decade versus U.S. equities.

“For people underweight Japan, that’s not good,” Matsui said.

As Prime Minister Shinzo Abe enters his fourth year of leadership, locals are showing more faith in his growth revival program, popularly known as Abenomics. That’s a reversal of the early days of his tenure, when foreign investors pumped a record ¥15 trillion into the nation’s equity market in 2013 as domestic investors sold.

Nonresident investors offloaded ¥230 billion in Japanese shares from January through Dec. 18, data from Japan Exchange Group Inc. show. The last time they sold as the Topix climbed in both U.S. and local-currency terms was in 1989, when the gauge rose 22 percent in yen and 6.8 percent in dollars.

Last year, the bulk of the selling came in August and September as China’s yuan devaluation sparked a global equity retreat.

“People were reducing risk across the board, it wasn’t specific to Japan,” said Mark Matthews, head of Asia research and a managing director at Bank Julius Baer & Co. in Singapore, which last year ended an overweight call on the nation’s equities and now has a neutral view. “Because Japan had received a lot of inflow, it’s natural that foreigners would be selling.”

Still, some of the shift was for Japan-specific reasons. Even long-only funds can’t wait years for Abe’s structural reforms to succeed, Matthews said. With the Bank of Japan unlikely to increase its quantitative easing program this year, the yen will remain flat or strengthen, damping the outlook for equities, he said.

Since the third-quarter rout, Japan has been one of the quickest developed markets to recover, with the Topix jumping 12 percent since its September low. Locals have the firepower to send shares higher without foreign help, and the buying spree by professional investors will encourage individuals to return to the market, according to Andrew Clarke, director of trading at Mirabaud Asia Ltd., a Hong Kong brokerage.

Trust banks, which typically trade on behalf of retirement funds, bought a net ¥1.6 trillion of stocks in 2015 after the Government Pension Investment Fund and its smaller peers boosted allocations to the nation’s shares. Proprietary traders added about the same amount of equities, which Nomura Holdings Inc. says reflects banks creating exchange-traded funds for the BOJ.

Local companies purchased a net ¥3 trillion of shares as the government’s push to make firms deploy their cash reserves spurred buybacks, while there was ¥113 billion in inflows from mutual funds. Japanese individuals sold ¥4.7 trillion.

“With the large Japanese pension funds being very vocal about buying equities, that can only help to increase interest from retail investors,” said Clarke. “Strong domestic interest from institutional and retail would be a major boost for Japan’s markets” in 2016.

The yen, which has eroded foreign investor returns over most of Abe’s term, barely budged last year against the dollar. The currency dropped 0.4 percent versus the greenback, and rose 11 percent versus the euro.

The Topix’s 8.1 percent gain in 2014 turned into a 4.9 percent drop when converted into dollars. In 2013, U.S. investors only enjoyed half of the 51 percent local surge in equities as the yen slumped.

Strategists see a fifth yearly gain for the Topix in 2016, with the median estimate in a Bloomberg survey picking a 16 percent advance to 1,800 by Dec. 31. The gauge hasn’t closed at that level since 2007.

Bulls point to the trajectory of company earnings, with operating profit at a record. Earnings per share on the Topix are estimated to increase 12 percent over the next 12 months. Valuations are also lower in Japan, with the Topix trading at 15.1 times estimated earnings, versus 17.4 times for the S&P 500.

For Sompo Japan, those are the things that will bring foreign investors back.

“A lot of overseas investors are just watching the situation now,” said Sompo Japan’s Senior Investment Manager Goya Nakao. “If economic data isn’t a concern following the Fed’s interest rate increase, then they’ll start favoring Japanese shares over the U.S. and Europe because of earnings and corporate governance improvements.”

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