On February 22, Japan's stock market saw an impressive surge, with the Nikkei 225 index crossing the crucial benchmark of 39,000 pointsThis achievement not only surpassed the historical peak set on December 29, 1989, during the height of the bubble economy but also marked a significant milestone in the current economic landscapeBy the end of the trading day, the Nikkei 225 closed at 39,098.68 points, reflecting a remarkable increase of 2.19% and showcasing a staggering year-to-date rise of over 16.8%.

Looking ahead, the outlook for Japanese stocks seems promisingAccording to a recent report by China International Capital Corporation (CICC), several factors contribute to the optimistic forecast for the Nikkei index in 2024. The influx of foreign capital, continued moderate growth in both the global and Japanese economies, the realization of a “wage-price spiral” domestically, the persistent efforts under the “Japan Special Valuation” policy, and a shift in Japanese household savings towards investments could pave the way for the Nikkei index to potentially break through the 40,000-point mark within the year.

In the A-share market, brokerage stocks showed significant movement in the afternoon session

Stocks such as Everbright Securities, Huachuang Yinxin, Shoujia Securities, Huaxin Co., and Jinlong Coled the gainsBy the end of the trading day, the Shanghai Composite Index rose by 1%, while the Shenzhen Component gained 0.6%, and the ChiNext Index edged up by 0.19%. China National Offshore Oil Corporation saw its stock price soar more than 4%, marking an all-time high, while China Petroleum rose over 4%, and China Petrochemical climbed by over 2%. Meanwhile, in the Hong Kong stock market, China’s offshore oil stock surged over 5% to reach new highs, and shares of China Petroleum also gained over 5%.

Moreover, major news emerged from the United StatesOn February 21 in Eastern Time, Intel, a semiconductor giant, hosted its inaugural wafer foundry event in San Jose, CaliforniaDuring the event, U.SSecretary of Commerce Gina Raimondo emphasized the need for the government to enhance subsidy investments to restore America’s leadership in the semiconductor sector

• Positive Breakthrough! A-shares Approach 3000 Points!
• Projected Relief from Oil Oversupply
• Global Wave of Interest Rate Cuts
• Yen Under Pressure
• Energy Upgrades: Turning Liabilities into Assets

This includes the formulation of a second chip bill.

The day’s historic breaking of the 39,000-point barrier was primarily driven by the semiconductor sectorNotable stock performances included Screen Holdings, which skyrocketed by 9.9% at one point, Disco, which surged over 9%, Tokyo Electron at 5.6%, Advantest at 6.3%, Renesas Electronics at over 5%, and Lasertec at 5.3%.

In its latest report, CICC also analyzed this bullish trajectory of the Japanese market over the last decadeThe findings indicate that the substantial increase in the Japanese stock market stems from the rise in earnings per share (EPS), attributed to Japanese companies actively expanding overseas to capture the global market, thus enhancing corporate profitability.

The rapid growth in Japan's EPS is reflective of the companies' performance being rooted in the global economic dynamics rather than just Japan’s economy

The ongoing improvement in the profitability of Japanese companies significantly contributes to this narrative.

According to data from CICC’s report, from early 2013 to February 2024, the Nasdaq index has performed the strongest globally with over a 400% increase, closely followed by the Nikkei index and the S&P 500, which both saw around 270% growthThe Tokyo Stock Exchange index and the Dow Jones also experienced gains of about 200% during the same period.

Looking towards the target of 40,000 points, CICC suggests a high likelihood that the Nikkei index could surpass this significant threshold in 2024. In comparison to the over 38,000 mark in 1989, the current valuation of Japanese stocks appears more reasonable, with better profitability, a larger pool of globally competitive companies, and improved corporate governance.

The structure of investors in the market also suggests a promising trend

Currently, foreign institutional investors are the largest holders and traders of Japanese stocks, and a surge in foreign buying correlates with rapid stock price increasesThe Bank of Japan has accumulated approximately 7% of Japanese stocks over the last decade, reducing the concern for selling risks in the short termAdditionally, companies have actively implemented stock buybacks in the past ten years, further accelerated by the Japan Special Valuation initiativeNotably, individual investors have been on a net selling spree since the collapse of the bubble economy, but they hold substantial cash reservesIf this capital can be redirected from savings to investments, it would likely provide a considerable boost to the Japanese stock market.

CICC notes that in an inflationary context, Japan is better positioned to leverage debt and invest in inflation-resistant assets, mirroring strategies employed by prominent investors like Warren Buffett

Historically, the impact of interest rate hikes by the Bank of Japan on the stock market has been relatively limited.

While CICC maintains a long-term bullish outlook for Japanese stocks, they also warn of potential short-term pullback risksThe Japanese economy is vulnerable to external influences, and historically, it has faced downturns coinciding with recessions in the United StatesIf the U.Seconomy were to enter a recession, it is likely that the Japanese economy would follow suit.

In summary, major developments are underway in many marketplaces around the worldThe United States is particularly focused on the semiconductor sector's resurgence through the implementation of the chip bill, which aims to boost domestic production of semiconductors while leveraging international partnerships