Salient to Investors:

Outside buyers invested $125 billion in Japanese stocks in 2013 through November, passing the previous highest total in 2005, which preceded a 1.9 percent increase for the Topix in 2006. November net purchases were the highest since April.

Wayne Bowers at Northern Trust said Abe’s policies will push Japanese shares higher in 2014, and it does not need much underlying growth to see another leg up.

Yoshihisa Okamoto at Mizuho Asset Mgmt said the Topix will rise to 1,750 by the end of 2014, as vigor from foreign investors is changing the behavior of domestic investors, , including public-pension funds. The average estimate of 6 polled analysts calls for a 19 percent increase.

Earnings jumped last quarter at more than 1,280 of Japan’s largest listed non-financial firms by the most since 2007. The Tankan Index shows sentiment among large manufacturers is the strongest since the early stages of the global credit crisis in 2007.

Nader Naeimi at AMP Capital Investors added to holdings in November for his dynamic asset allocation funds, based on an outlook for the yen to weaken to 107 per dollar and the Nikkei 225 to rally to 18,000 in Q1 2014. Naemi said Abenomics and a push towards inflation will make Japanese shares outperform US equities.

The Government Pension Investment Fund was advised last month by an expert panel to put more of its 124 trillion yen into private equity, commodities, REITs and overseas assets, and consider passive investing based on the JPX-Nikkei Index 400, which starts next year and focuses on return on equity.

James Moffett at Scout Investments said it will be interesting to see whether Abe’s reforms are really going to work or not.

Topix valuation peaked at 1.37 times assets in May, the highest since August 2008.

Gary Dugan at RBC’s Coutts said it is easy for this market to lose 10 percent very quickly, and when the economy struggles next year this market could lose you money.

About 18 percent of 272 investors surveyed in November by Bank of America Corp. listed Japan as their favorite developed-equity market next year, compared with 44 percent for the U.S. and 31 percent for Europe.

Citigroup Inflation Surprise Index for Japan climbed to a record last month, signaling price data have surpassed economist estimates more frequently than they fell short.

Michael Kurtz at Nomura said that with radically game-changing BOJ monetary reflation pressing ahead in any case, we expect 2014 will offer a second year of progress beyond Japan’s 2 lost decades, with likely continued equity outperformance.

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