Overseas fund managers, who have been net buyers of Japanese stocks for more than two months, are expected to remain the pace-setters. They're scrambling to get back into a market that has far outstripped its US and European counterparts this year, spurred by signs that Japanese companies are getting serious about improving their profitability.
"Japan has performed very well in the first quarter, and people who have been underweight that market to some extent feel they've missed the rally," said Scott McGlashan, head at Perpetual.
The benchmark Nikkei index, which last week fell 2.2 per cent to 16,016.99, may climb to 16,500. Some investors expect government-linked pension funds to buy especially during the final two trading days of fiscal 1998. They suggest the government is keen to push the benchmark above its close last 31 March to minimise paper losses recorded by banks and institutions on their investment portfolios. "I think a huge effort will be made to ensure that 31 March is a good day for the market," said Celia Farnon at Nomura Securities.
And the beginning of fiscal 1999 means domestic institutional investors will be receiving new funds they can pump into a market that has risen 16 per cent in 1999 - more than double the gains by the Dow Jones.
Sony and other international stars such as Honda stand to gain from renewed global interest in Japan. Profits will be coming into focus as companies close their books - a summing-up that will most likely be accompanied by a spurt of downward earnings revisions. "Aside from companies that are clearly restructuring, the spotlight will go back again to companies with better earnings," said Farnon.
That may slow gains by banks and so-called "sunset" industries, which have led the market in recent weeks as global investors have started taking another look at parts of the Japanese economy they had given up for dead. Foreigners are picking up shares in those industries because: "That's where most of the restructuring stories have come out, and they're also the things that are most leveraged to any economic upturn," said McGlashan.