Japanese stock market participants expressed frustration on the 5th as the Nikkei 225 index's movements continue to correlate with South Korea's KOSPI index rather than reflecting Japanese corporate fundamentals. The Nikkei 225 surged over 2,000 yen intraday on the 5th, yet market sentiment remained subdued, according to Nikkei newspaper. The correlation stems from both indexes' high weighting in AI-related stocks, causing overseas investors to treat them as a single asset class. Tokyo securities professionals report that Japanese company earnings and other domestic factors are being overshadowed by supply-demand dynamics in the Korean market.
Nikkei 225 Rises Over 2,000 Yen Intraday on the 5th Amid Cool Sentiment
The Nikkei 225 average rose more than 2,000 yen intraday on the 5th, driven by AI and semiconductor-related stocks including Ibiden, Advantest, Fujikura, and Kioxia Holdings following strong earnings reports. A trader at a major Japanese securities firm stated that overseas long-only investors are shifting funds to domestic stocks instead, questioning who is actually buying AI-related shares. The trader characterized the rally as driven by short-term capital through index futures rather than sustained overseas inflows, contrasting sharply with the enthusiasm seen in April and May. When the KOSPI reduced its gains on the 5th, the Nikkei 225 similarly slowed its upward momentum.
KOSPI-Nikkei Correlation Began in Early April Following US-Iran Ceasefire
The correlation solidified in early April after a US-Iran ceasefire agreement brokered by Pakistan. Global investors began purchasing AI and semiconductor stocks, and the Nikkei 225 and KOSPI started being treated as a single group due to their shared high weighting in AI-related companies. Tokyo securities professionals complain that the volatile movements of the supply-driven Korean market are transferring directly to Japan, burying trading factors generated within Japan such as corporate earnings.
Fund Managers Hesitate to Increase Japanese Stock Holdings
Naohide Une, president of Investment Lab, which operates a Japanese stock hedge fund, stated that while the market has moved past the bottom following last month's AI stock plunge, it remains difficult to immediately increase holdings and counterattack, particularly during periods of high volatility. Tomonobu Sekiguchi, fund manager at Asset Management One, expressed hesitation to resume buying despite Tokyo Electron and Murata Manufacturing shedding overvaluation concerns. Sekiguchi said he would increase holdings if stock prices return to movements aligned with fundamentals such as earnings. Toru Ibayashi, head of investment at H Fund Investment, noted difficulty buying export stocks like automakers due to yen appreciation from US-Japan coordinated intervention, and said AI-related stocks still lack conviction. Ibayashi repurchased all Nikkei futures sold near 70,000 yen at around 62,000 yen and plans to pause both buying and selling for the time being.
BofA Securities Schedules Conference from 31st to 4th of Next Month
September is cited as a potential turning point for resumed buying. Major Japanese and foreign securities firms hold large-scale Japan stock conferences around this time each year, with overseas investors visiting Japan, meeting local companies, and returning home to initiate purchases. Bank of America Securities will hold a conference from the 31st to the 4th of next month. The number of investors planning to attend already exceeds last year, and according to Shinichiro Yamagami, head of Japan equity sales, requests for individual company meetings have quadrupled year-over-year in some cases, centered on AI-related firms. Nikkei newspaper projected that once investors begin buying based on individual company analysis, the correlation with the Korean market lacking substance will naturally fade. Expectations exist that reduced volatility could trigger additional buying and lead to a year-end rally.
FAQ
What caused the Nikkei 225 and KOSPI to become correlated?
The correlation began in early April after a US-Iran ceasefire agreement brokered by Pakistan. Global investors started purchasing AI and semiconductor stocks, and because both the Nikkei 225 and KOSPI have high weightings in AI-related companies, overseas investors began treating them as a single asset class.
Why are Japanese fund managers hesitant to buy stocks despite the Nikkei 225 rising over 2,000 yen intraday on the 5th?
Fund managers remain cautious due to high volatility, wounds from last month's AI stock plunge, and yen appreciation from US-Japan coordinated intervention. They express reluctance to increase risk exposure until stock prices return to movements aligned with corporate fundamentals rather than supply-demand dynamics in the Korean market.
