Asian stocks: A surge in optimism for Japanese equities has catalysed record inflows into US-listed Asian stocks in 2024, according to a recent analysis by Morgan Stanley. 

The investment bank's client note, dated February 26, highlights a dramatic shift in investor sentiment, with global institutional investors, predominantly US and European hedge funds, net purchasing $20.4 billion of Asian equities in the US market. 

This marks a potential all-time high in quarterly net inflows, contrasting sharply with the net outflows commonly observed over the past four years from Asian American Depositary Receipts (ADRs).

A significant portion of these investments has targeted a broad spectrum of US-listed Japanese firms, spanning sectors such as banking and automotive. This investment trend coincides with Japan's Nikkei index reaching unprecedented highs, eclipsing levels unseen since the "bubble economy" era of 1989. 

Factors such as attractive valuations and corporate reforms have drawn investors towards Japanese markets as a viable alternative to the less favorable conditions in Chinese markets.

Leading the pack in terms of investment attraction are companies like MUFJ Financial, Sumitomo Mitsui Financials, Nomura Holdings, Honda Motor, and Takeda Pharmaceutical. 

Conversely, Indian and Singaporean firms listed in the US have experienced the most significant sales pressures, with mixed flows observed towards Chinese entities.

Investor confidence in Japan is buoyed by the prospects of stable inflation and wage increases, phenomena not witnessed in decades, expected to lure further foreign capital into Japanese stocks.

With Asia's second-largest economy reporting a 2.0 per cent rise in core consumer price index (CPI) for January, surpassing forecasts and aligning with the central bank's target, the stage is set for an ongoing influx of foreign funds. 

Portfolio Manager of Neuberger Berman, Kei Okamura, notes that despite the current enthusiasm, foreign investment in Japanese equities remains below the highs of 2015, indicating room for growth as valuations continue to appeal to international investors.