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Having climbed relentlessly since March amid a surge of pandemic-era interest from retail investors, Japan’s startup index has finally reached its highest closing level since 2006.

The Tokyo Stock Exchange Mothers Index, made up of some 322 startups and smaller firms, has risen more than 50% this year, even as the benchmark Topix and the blue-chip Nikkei 225 index have struggled to regain their year-to-date losses.

As of Wednesday, that rally has finally taken the index past a 2018 peak to a high not seen since August 2006. With the gauge the second-best-performing equity index in the Asia-Pacific region after the ChiNext Index this year, that’s got some suggesting investors should pay Mothers more respect.

"Investors could be focusing their attention on Mothers because the mainstream indices are stuck,” said Makoto Sengoku, a market analyst at Tokai Tokyo Research Institute Co. "There have been moments when the turnover for Mothers was higher than Tokyo Stock Exchange’s first section’s, and money is flowing and keeping Mothers strong.”

The coronavirus pandemic proved to be a blessing in disguise for many Mothers-listed companies as investors first poured their money into pandemic-themed stocks. Biopharmaceutical company AnGes Inc. surged on hopes for its coronavirus vaccine candidate, which has since lagged far behind competitors, while virtual flea market operator Mercari Inc. benefited from people shopping online.

Then investors got another reason to keep pushing money into the index — this time in the form of Prime Minister Yoshihide Suga, whose push for digitalization of Japan’s bureaucracy has benefited a host of tech startups.

Bengo4.com Inc, which offers digital signature services, has risen 50% since Suga took over, with newly appointed administrative reform minister Taro Kono spearheading an initiative to remove hanko, or official stamp requirements for administrative documents. Telemedicine provider Medley Inc. also gained after Kono said that the government plans to allow online medical appointments.

Mothers will continue to rally, said Naoki Kamiyama, chief strategist at Nikko Asset Management Co. in Tokyo. But its success will ultimately depend on whether biotech and digital-transformation picks can seize the chance to grow even after the pandemic is over.

"These companies will need to embrace the opportunity, but not overextend themselves,” he said. "Investors will need to carefully pick individual companies.”

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