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Nikkei 225 Index Hits Record High After PM Abe’s Election Win




20 November 2017




Market Updates
























Nikkei 225 Index Hits Record High After PM Abe’s Election Win



  • In the 4 weeks since Japan’s 22 October 2017 general elections, the Nikkei 225 Index rallied 7% before gains were trimmed to 4%.


  • The Nikkei 225 Index rose to a 25 year record high to breach the 23,000 point level after Prime Minister Shinzo Abe’s ruling coalition scored a landslide general election victory that coincided with better-than-expected corporate earnings and a return in foreign investment in Japanese stocks.


  • SGX Nikkei Options achieved an average daily turnover record of 58,565 contracts in October, while SGX Nikkei Futures is at a 22-month average daily turnover high of more than 142,000 for the month ending 17 November.






It has been a tremendous month for Japan equity investors.

Firstly, the benchmark Nikkei 225 Index rose for a record 16-straight sessions from the start of October until two days after the 22 October Japan general elections, highlighting the positive market sentiment after Prime Minister Shinzo Abe’s ruling coalition won a landslide victory.

Following that, the benchmark Nikkei 225 Index scaled the 23,000 point psychological level on 9 November to attain the highest level in 25 years, fuelled by better-than-expected corporate earnings and a return in foreign investment in Japanese stocks. The Nikkei 225 Index’s year-to-date gains were pared to 17% as of 13 November, after hitting a high of 20% in early November.

In October, foreign investors bought a net ¥3.45 trillion (US$30.5 billion) of Japanese equities in the largest net inflow in a single month since data was compiled in 2005. Looking at the entire 2017 year-to-date, foreign investors have been net buyers of Japanese equities.

Source: Bloomberg, 13 November 2017

Looking ahead, the yen is expected to continue to weaken against the dollar as monetary policy diverges; the Bank of Japan has signaled no change in monetary policy whilst the consensus analyst forecast is for the US Federal Reserve is to raise rates in December. Given the historical inverse correlation between the yen and the exporter-heavy Nikkei 225 Index, further depreciation of the yen is expected to boost performance of the Index.

Where Will The Nikkei 225 Index Be A Year From Now?

Prime Minister Abe has led his party to victory in the last 3 consecutive general elections. In the 12 months following Abe’s first election in December 2012, the Index gained a huge 60%. Abe’s second election victory in 2014 preceded a more turbulent post-election year with the Index returning only 11% over the year.

In the 4 weeks since the 22 October general elections, the Nikkei Index gained 7% to hit a high of 23,382 points on 9 November before the Index fell to 22,351 points on 16 November, trimming gains to 4.2%. This first month following the 2017 general elections compares favorably against the 3% losses suffered by the Index after the 2014 general elections but underperforms the 9% gains recorded in the month following the 2012 general elections.

Nikkei 225 Index Returns Over Abe’s General Elections (“GE”)

Source: Bloomberg, 13 November 2017

Following 6 days of consecutive losses from 8 November to 15 November, the Nikkei 225 Index closed upwards on 16 November. Market analysts attribute the extended period of declines to seasonal factors such as profit-taking as the year nears its close. According to a Bloomberg article[1], a number of hedge funds end their fiscal year in November, which further depletes market liquidity.

  1. stocks have one institutional buyer solidly in their corner, the Bank of Japan. The central bank purchases ETFs as part of its quantitative easing package. According to Bank of Japan data, the central bank resumed its ETF purchases during 4 out of the 6 days where Nikkei 225 Index suffered declines after sitting out most of October and early November.

SGX Nikkei Derivatives Achieves Record Volumes

An all-time average daily volume record of 58,565 contracts was achieved for SGX Nikkei Options in October, after turnover grew 49% over the previous month. The number of outstanding positions also surged to a three-year record high of 1.6 million contracts. Month-to-date average turnover as of 17 November is 58,740 contracts.

SGX Nikkei 225 Options Sets New Average Daily Volume Record in October 2017

Source: SGX, 17 November 2017

SGX Nikkei 225 Index Futures average daily turnover grew to more than 142,000 contracts for the month up to 17 November, the highest turnover in close to 2 years.

With the most complete suite of Japanese financial derivatives on an offshore exchange, SGX offerings span the flagship Nikkei 225 derivatives, Japanese government bonds, dividend futures, long-dated options as well as Japanese yen FX futures.

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[1] Bloomberg News “Hedge Funds Seen as Sellers in Japan's Deepening Stock Rout”, 15 November 2017