After 30 weeks of mostly unbroken gains, the Tokyo Stock Exchange’s Mothers market for start-ups last week barged excitedly through the doors of a 14-year high.
Waiting on the other side were traders, analysts and other pundits with plenty of reasons why the breakthrough had been foreseeable, but little clue of how much longer the fun will continue.
Critical to Mothers’ 2020 explosion have been Japan’s retail investors: a corps described in cliché as “Mrs Watanabes”, but nowadays more likely, say the online brokerages to be her 25 to 45 year-old son or daughter.
And there are now many more of them. Japan’s leading online brokerages have enjoyed record months of new account openings, with Rakuten logging 650,000 in the first six months of the year and SBI meeting an average of 70,000 per month in 2020.
In common with their forebears, this new generation of retail investors appears contrarian by instinct. Brokers say the investors saw the market lows of mid-March as a roaring signal to buy. But does that make the 14-year peak the moment they will decide to sell?
Not obviously. The Mothers market, which lists more than 320 start-ups and has produced 20 companies with a market value over $1bn, has climbed 45 per cent so far this year. The relatively manageable number of domestic-focused stocks, the high volatility and the insulation from fluctuations in the yen makes it an ideal retail investor hunting ground. The stability of the yen, ironically, has caused many individuals who would previously have traded currencies to shift their focus into equities.
Rise in the Mothers market index since March 19
And even at these historic highs, said analysts at Pelham Smithers Associates, there are reasons that many investors may decide not to take profits. Many Mothers names have seen their businesses thrive under the changes created by the Covid-19 pandemic. To begin a sell-off now would run against the grain of earnings trends. The sudden one-day spikes in many Mothers stocks also mean that investors are often reluctant to sell for fear of paying dearly later should they want to get back in.
Mothers, meanwhile, falls outside Japan’s mainstream investment scene. Its outperformance contrasts with that of the broad Topix index which tracks the 2,000-odd stocks in the first section of the TSE and has traded sideways since June. The Topix has suffered from lacklustre turnover and the absence of sustained buying by foreign investors.
Unlike the giant household names and the huge corporate hinterland that populate the Topix, the stocks on Mothers come with alluring stories of a “new Japan”. Taken from its low in mid-March, the Mothers resurgence has come with the idea that Covid-19 is the game-changing opportunity for small companies.
The 148 per cent rise since March 19 has been driven by investors’ fizzy, tech-centric attraction to growth and produced astronomical gains in online advertisers, fintech minnows, IT services and a good contingent of tech companies that have never yet turned a full year’s profit. As the pandemic has done its worst, the Mothers market has provided investors with long-odds bets on biotech and pharma start-ups that may produce the miracle vaccine.
In some lights, this capture of retail investors’ imaginations represents a previously elusive success for Abenomics — the policy ambitions of Japan’s former prime minister which included efforts to persuade the nation’s households to invest more of their vast savings into riskier assets.
Investors’ stockpicking strategies within the Mothers universe have also focused on themes explicitly backed by government policy. Plans to create a new ministry for digital transformation, for example, has propelled a basket of software and remote-working Mothers names into the stratosphere.
But that does not make Mothers immune to a retreat by retail investors. In the period just before Mothers hit its 14-year high, some patterns had begun to change. One shift, notes Mizuho strategist Masatoshi Kikuchi, is that overseas investors — mostly hedge funds based in Hong Kong and Singapore — turned net buyers of Mothers stocks in each of the four weeks ahead of the October 14 peak. In the last of those weeks, individuals were the net sellers.
On one reading, the sustained, momentum-driven arrival of institutional money to a market previously boosted by retail buying should ensure months of buoyancy and gains and give retail investors reason to stay locked into Mothers stocks. History suggests, however, that Mrs Watanabe’s famous contrarian instinct will kick in at any moment, and that institutional buy-in will become her trigger to sell.