Japanese stocks are favored again? Bank of America: U.S. stock valuations are high, and overseas funds are turning to Japan

According to the latest survey and fund flow statistics from Bank of America, global investors are gradually turning to Japanese stocks. Analysts pointed out that the overvaluation of US stocks is prompting investors to look for markets with more attractive valuations, and Japan has become a new hot spot for funds.

The survey found that European and Canadian fund managers have increased their holdings of Japanese stocks, and investors familiar with Japanese stocks in the US market have also re-added their holdings. The fund flow in the Japanese stock market has shown a net inflow for 10 consecutive weeks.

The Bank of America research team observed that although US retail investors still focus on technology giants such as the "Magnificent Seven", many investors expect that US stocks will face valuation adjustments, so they turn to Japan to seek diversified allocations.

Japanese stocks are not as strong as India in attracting funds, but they still rank second in Asia. Funds are flowing into India at an accelerated pace, but Japan is still favored by its stable governance and value appeal.

Japanese companies have launched corporate reforms and buybacks, and governance benefits are beginning to emerge. BofA expects this trend to continue and support the market's medium-term performance.

Three highlights that investors should pay attention to

• Changes in the valuation of the yen and Japanese stocks: If the yen appreciates due to interest rate hikes or risk aversion, it will suppress foreign returns, but continued governance reforms can increase corporate profits.

• BoJ policy and interest rate spread layout: If the Bank of Japan accelerates interest rate hikes, it will help the performance of bank stocks and financial sectors, while improving the yield curve.

• Supply chain and global capital allocation shift: If the US stock market continues to be overvalued and global risks rise, mature markets such as Japan and Europe will be the main safe havens for funds.

Investment advice and strategy

• In terms of stocks: You can lock in comprehensive Japanese stocks with neutral yen risk, obvious governance reforms, and stable cash flow.

• ETF allocation: It is recommended to consider iShares MSCI Japan ETF (EWJ) or WisdomTree Japan Hedged Equity ETF (DXJ) in conjunction with exchange rate strategies.

• Bond selection: If the BoJ changes its policy direction, you can consider short-term Japanese bonds and Japanese financial institution bond funds, or match them with interest rate bullish ETFs.