Live Markets: Japan's tech rally pushes Nikkei/Topix ratio to record

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JAPAN'S TECH RALLY PUSHES NIKKEI/TOPIX RATIO TO RECORD

Japanese stocks have had a stellar April. The Nikkei 225 .N225 has surged above 60,000 for the first time after a selloff in March following the outbreak of the Middle East war.

The blue-chip index is up 17% so far this month. In contrast, the Topix .TOPX, which tracks the entire market of domestic companies, has risen just 8% and is still about 4.5% below its all-time high.

The outperformance of the Nikkei has pushed the Nikkei/Topix ratio to its highest on record of 16.2.

"The main reason for the sharp gains in the Nikkei 225 and the increased N/T ratio is clearly sharp growth in AI/semiconductor-related sectors/stocks," writes Citi analyst Ryota Sakagami.

Sakagami believes there is little sign of overheating in the high-tech sector currently, which suggests the risk of a correction is not high.

But, he says, the Nikkei/Topix ratio could still normalise as the Topix catches up.

"Currently, investor interest in momentum stocks is focused on high-tech names, but we think this is likely to expand to include laggard momentum stocks if uncertainty over the situation in the Middle East eases," says Sakagami.

"Accordingly, we look for a gradual normalisation of the N/T ratio driven not by a high-tech correction but by laggard stocks catching up."

(Samuel Indyk)

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Nikkei/Topix ratio jumps to record as Japan's tech stocks surge https://www.reuters.com/graphics/JAPAN-STOCKS/lbpgyybrepq/chart.png