Nikkei hits five-month high as investors shift to value stocks

What’s going on here?

Japan’s Nikkei stock index rose sharply, reaching its highest closing price since mid-April at 0.95 percent, diverting attention from the technology sector.

What does that mean?

With sentiment in the technology sector cooling, investors are turning away from semiconductor and AI stocks and investing in value stocks. The Nikkei closed at 39,173.15, up 0.95%, while the broader Topix index rose 1.72% to 2,787.37. Toyota Motor rose 4.6%, helped by a weaker yen, which is boosting exporters’ sales. Fast Retailing gained 1.1% and IHI rose 9.7% to a six-year high. Meanwhile, technology stocks such as Disco Corp and Tokyo Electron declined as global sentiment turned more cautious on Nvidia’s decline and a 3.02% drop in the Philadelphia SE Semiconductor Index.

Why should I care?

For markets: Value stocks are in the spotlight.

As investors shift their portfolios toward value stocks, sectors such as insurance and automobiles are posting gains. Insurance companies rose 4.3%, leading industry gains, followed by automakers and suppliers. This strategic shift comes as portfolio managers look to capitalize on underperforming market segments at the end of the quarter.

The bigger picture: Navigating the Japanese market landscape.

The fluctuating yen and potential changes in Bank of Japan policy are important considerations for investors. A selective bottom-up approach to Japanese equities could prove beneficial, especially given the escalating risks of yen appreciation in the second part of the year. After the Nikkei hit a record high in March before retreating, investors are weighing currency and binding market volatility.