Japan’s equity rally last year in the face of foreign selling is challenging conventional wisdom that purchases by overseas investors are necessary for the market to keep rising. And that breakdown in correlation bodes well for the country’s shares.
The key 225-issue Nikkei average advanced 16% in 2020 despite more than ¥6 trillion of foreign net selling in the cash and futures market, according to Japan Exchange Group data. It was the first time since 1989 that the blue-chip gauge recorded a double-digit gain amid net foreign selling.
The phenomenon suggests the nation’s local investors have been playing a larger role in setting the market’s trend. The Bank of Japan was the largest domestic entity to purchase local equities last year, doling out ¥7.1 trillion in net buying. Japanese institutions including insurers and banks were also net buyers of ¥7.6 trillion worth of shares during the period, according to data compiled by Mizuho Securities Co.