Japan's stocks are on a tear and could rise another 14%, says Nikko strategist

Published Wed, Nov 25 20208:19 PM EST

Key Points

Japan's Nikkei 225 has seen strong gains this year, rising more than 11% since the start of 2020.
Nikko Asset Management's John Vail says Japanese stocks could go even higher at a time when its markets are "sort of firing on all cylinders."
The recent bounce in Japanese stocks has in part been bolstered by positive momentum on the coronavirus vaccine front.

SINGAPORE — Japan's stock market has seen strong gains this year, rising more than 11% since the start of 2020. After spending decades off its all-time high in December 1989, the Nikkei 225 soared in recent days to levels not seen since the early 1990s. But Nikko Asset Management's John Vail said the Japanese benchmark index is set to trade even higher going into 2021, as stocks in the world's third largest economy are "sort of firing on all cylinders." North Asia has often been praised for its relatively strong management of the coronavirus pandemic, with major economies in the region weathering the crisis better compared to some of their peers elsewhere. The recent bounce in Japanese stocks has in part also been bolstered by positive momentum on the coronavirus vaccine front that triggered gains across many major markets globally, with the Dow Jones Industrial Average breaching the 30,000 level. "Personally, I think 30,000 on the Nikkei is achievable next year," Vail, chief global market strategist at the asset management firm, told CNBC. That's about 14% higher than where the Nikkei 225 currently sits, as of its close on Wednesday. Value stocks are now sort of a global fad and Japan is the home of value investing. Nikko Asset Management John Vail Earlier this week, AstraZeneca announced that an interim analysis showed its coronavirus vaccine has an average efficacy of 70% in protecting against the virus. That news came on the heels of announcements by Pfizer and Moderna , with both also reporting preliminary results showing their respective Covid vaccines were about 95% effective. "Japanese people and investors tend to be quite skittish, verging on the side of pessimism about the future," Vail said. "With the vaccines coming out, it will probably reassure consumers and investors in Japan much more in magnitude than elsewhere." As a result, the Japanese markets could see a "large 'dollop' of new investment funds," bolstered by the high dividend yields of stocks in the country. "It does seem that Japan has finally risen to the level where the domestic equity culture is strong," he said, adding that the country no longer needs foreigners to "boost the market" as domestic investors can do that now. Furthermore, if earnings exceed expectations again like they did in the last quarter, the strategist said: "Valuations would be even lower in Japan than they currently seem to be." "Value stocks are now sort of a global fad and Japan is the home of value investing," Vail said.

Signage for the Tokyo Stock Exchange (TSE), operated by Japan Exchange Group Inc. (JPX), is displayed outside the bourse in Tokyo, Japan, on Friday, Oct. 2, 2020.

Akio Kon | Bloomberg via Getty Images

SINGAPORE — Japan's stock market has seen strong gains this year, rising more than 11% since the start of 2020.

After spending decades off its all-time high in December 1989, the Nikkei 225 soared in recent days to levels not seen since the early 1990s.

But Nikko Asset Management's John Vail said the Japanese benchmark index is set to trade even higher going into 2021, as stocks in the world's third largest economy are "sort of firing on all cylinders."

North Asia has often been praised for its relatively strong management of the coronavirus pandemic, with major economies in the region weathering the crisis better compared to some of their peers elsewhere.

The recent bounce in Japanese stocks has in part also been bolstered by positive momentum on the coronavirus vaccine front that triggered gains across many major markets globally, with the Dow Jones Industrial Average breaching the 30,000 level.