Long-awaited! The time has come for small and medium-sized growth stocks to turn around.

The annual decline of the TSE Growth 250 Index began in 2021. In that year, the market strongly realized the early timing of the start of rate hikes by the Federal Reserve Board (FRB) due to a significant increase in the US CPI (Consumer Price Index).The rate hike, the first in 3 years and 3 months, was decided at the March 2022 FOMC meeting, but small and mid-cap growth stocks declined in line with the rise in US interest rates.Due to the rise in interest rates, it is logical that valuation adjustments for expensive stocks with high expected PER and PBR will progress.

The Tokyo Growth Market, which suffered from low performance to the extent that voices mocking it as being like a third-rate team were raised, showed a turnaround in the turmoil of August. A historic sharp decline occurred in just the first three trading days, demonstrating astonishing resilience towards the end of the month. As a result, the August monthly rise and fall rates were -1.2% for the Nikkei Stock Average and -2.9% for the TOPIX. However, compared to the Prime market, which had a negative monthly performance, the Tokyo Growth 250 Index ended the month with a +3.2% increase.

August was highlighted by a strong yen strengthening that anticipated the narrowing of the interest rate gap between Japan and the United States. As a result, the Tokyo Growth Market, which lacks multinational companies that can enjoy the benefits of a weak yen, is also known as 'THE domestic demand stock' market. The rising speculation of a US rate cut at the September FOMC, which is being separated from exchange rate uncertainties, and the current factors contributing to the strong yen... The scenario of valuation eroded by the Fed's rate hikes recovering in the future can be described as simple yet powerful. While the Tokyo Growth Market played a monthly positive counter-trend in August, one characteristic is that the trading volume did not show much activity. The average daily trading value per day was 142.5 billion yen from January to July, but decreased to 129.7 billion yen in August... Compared to the surge in trading volume in the Prime market, it even feels out of place. There seems to have been little active buying in the Tokyo Growth Market, and it can be concluded that it was a quiet market.

Yet, what was the reason for the rise? It is likely to be attributed to 'there were fewer sellers'. On August 5th, the Tokyo Growth 250 Index experienced a significant drop of -15.8% compared to the previous day. This crash, with many stocks hitting the limit down circuit breaker, is believed to have motivated the liquidation (loss-cut) of outstanding credit buying positions that had remained in unrealized losses. Positions that were expected to be sold off soon were wiped out in a short period of time, leading to a reduction in overall selling pressure.

In order to avoid the four consecutive years of negative history, the Tokyo Growth Market is gradually setting the stage. Among the listed stocks in this market, five stocks were picked up that had: ① particularly low return selling pressure from individuals (low credit buying balance ratio), ② growth potential (forecasted increase in sales and operating income for the current fiscal year), ③ potential recognition by institutional investors (coverage by analysts from two or more securities firms), and ④ outperformed the index in the counter-trend high August with a growth rate of 3.2%.

Furthermore, for long-term performance improvement, it is essential for funds to flow into funds specializing in Australian small/mid cap growth stocks. While there is strong inflow of individual money into investment trusts in the New NISA, it would be best if some of the funds flowing into US stocks could flow into Australian small/mid cap growth stock funds. Hoping for such movements to occur a bit more, like 'Sell Orkan and buy Japanese small/mid cap stocks! Japanese growth stocks!'