(Jan 18): Japanese retail investors sold the most cash equities since November 2013 last week, taking profit after a strong rally that sent the Nikkei average to bubble-era highs.

They offloaded a net ¥1.07 trillion (RM33.9 billion), data from Japan Exchange Group Inc showed on Thursday. Foreign investors meanwhile added ¥956 billion, the most since early June last year.

“It’s surprising that individuals sold more than ¥1 trillion” as people expected inflows related to investment trusts and the new tax-free investment account program, said Shingo Ide, chief equity strategist at NLI Research Institute. “As the Nikkei 225 was in range bound late last year, retail investors must have been waiting for the gauge to hit 34,000, and they sold off.”

Domestic investment trusts, which are being closely watched for clues on retail investors’ appetite following the introduction of new tax-free investment accounts (NISA), also sold ¥120 billion.

International demand has helped Japanese shares extend their outperformance versus other major equity markets into the new year. The blue-chip Nikkei 225 Stock Average rose to as high as 35,839.65 last week and capped a weekly gain of 6.6% — the biggest jump since March 2022.

Both the Topix index and Nikkei have touched their highest levels in 34 years, thanks to bullish factors such as a weaker yen, negative interest rates and the exchange’s push to improve corporate governance.

The Nikkei may be headed for 40,000 as shares test record highs through the middle of the year, Hikaru Yasuda, chief equity strategist at SMBC Nikko Securities, wrote in a note. While the gauge’s recent advance resembles the April-June 2023 rally, momentum is stronger and suggests overseas pension funds and sovereign funds are playing a “long game,” Yasuda wrote.

The Nikkei was little changed from the previous trading session, closing at 35,466.17 on Thursday in Tokyo.

“Individual investors are taking profits ahead at this stage, but there is a good chance that they will buy on dips,” said Masayuki Otani, chief market strategist at Securities Japan Inc.