Nikkei Index jumps to one-year highs above 41,000 after the US-Japan deal
- The Nikkei Index rallied 3.5%on Wednesday following Japan's trade deal with the US.
- Japanese imports will be subject to 15% tariffs, down from the 25% levies announced on July 7.
- Automakers have been the best performers with shares of Mazda jumping nearly 18% in one day.
The Nikkei Index was the strongest performer among the world’s leading stock indexes during a risk-on session on Wednesday. The trade deal between the US and Japan boosted a 3.5% rally in the Japanese Index, with automaker stocks leading gains.
US President Trump surprised traders late Tuesday, announcing a “massive deal” with Japan that reduces levies to imports from the Asian country to 15%, down from the 25% levy set on July 7. In exchange, Japan is expected to invest $550 billion in the United States.
The Japanese Nikkei Index rallied from the opening bell, with automakers celebrating the news. Mazda was the best performer, with a 17.7% rally, while shares of other car makers like Subaru rallied 16.6% and Toyota surged 14.34% on the day.
Beyond that, Prime Minister Ishiba denied reports from local newspapers suggesting that he would resign in August, which eased concerns about political uncertainty, and the BoJ Deputy Governour Uchida reiterated the bank’s cautious stance towards further rate hikes, suggesting that monetary policy will remain accommodative for some time, a favourable environment for equity markets.
AsianStocks FAQs
Asia contributes around 70% of global economic growth and hosts several key stock market indices. Among the region’s developed economies, the Japanese Nikkei – which represents 225 companies on the Tokyo stock exchange – and the South Korean Kospi stand out. China has three important indices: the Hong Kong Hang Seng, the Shanghai Composite and the Shenzhen Composite. As a big emerging economy, Indian equities are also catching the attention of investors, who increasingly invest in companies in the Sensex and Nifty indices.
Asia’s main economies are different, and each has specific sectors to pay attention to. Technology companies dominate in indices in Japan, South Korea, and increasingly, China. Financial services are leading stock markets such as Hong Kong or Singapore, considered key hubs for the sector. Manufacturing is also big in China and Japan, with a strong focus on automobile production or electronics. The growing middle class in countries like China and India is also giving more and more prominence to companies focused on retail and e-commerce.
Many different factors drive Asian stock market indices, but the main factor behind their performance is the aggregate results of the component companies revealed in their quarterly and annual earnings reports. The economic fundamentals of each country, as well as their central bank decisions or their government’s fiscal policies, are also important factors. More broadly, political stability, technological progress or the rule of law can also impact equity markets. The performance of US equity indices is also a factor as, more often than not, Asian markets take the lead from Wall Street stocks overnight. Finally, the broader risk sentiment in markets also plays a role as equities are considered a risky investment compared to other investment options such as fixed-income securities.
Investing in equities is risky by itself, but investing in Asian stocks comes along with region-specific risks to be taken into account. Asian countries have a wide range of political systems, from full democracies to dictatorships, so their political stability, transparency, rule of law or corporate governance requirements may diverge considerably. Geopolitical events such as trade disputes or territorial conflicts can lead to volatility in stock markets, as can natural disasters. Moreover, currency fluctuations can also have an impact on the valuation of Asian stock markets. This is particularly true in export-oriented economies, which tend to suffer from a stronger currency and benefit from a weaker one as their products become cheaper abroad.
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