(Bloomberg) -- Japan's economy shrank last quarter by the most in data going back to 1955 amid the pandemic. But investors don't mind -- its stock market is beating the world.
The Topix Index is the world's best-performing major benchmark so far in August, thanks to a recovery in once-lagging energy, industrial and financial stocks. The gauge's 8% climb this month is pushing the gap between its 50-day and 200-day average ever tighter, threatening to form a golden cross -- a bullish pattern that can indicate further gains.
Japan reported a 27.8% contraction in its gross domestic product in the three months through June, slightly worse than economists' forecast for a 26.9% decline. The Topix index quickly pared a drop of as much as 0.4% after the market opened and was flat as of 9:31 a.m. in Tokyo.
Meanwhile, the country's Nikkei 225 index has broken up out of a trading range that had been in place since June, breaching a closely-watched technical resistance level.
“The Nikkei 225 Index seems to be moving towards erasing year-to-date losses alongside a broad recovery in Asia-Pacific equity markets,” said Margaret Yang, a strategist at DailyFX, “Clearing the 23,300 resistance will likely open the room for more upside towards 24,000.”
Fundamentally, an improvement in the Covid-19 situation, the historic low interest-rate environment and resilience in domestic consumption may support further upside, she said.
While the Japanese economy was under pressure even before the virus -- hit first by trade wars then a sales tax hike -- support from policy makers has been massive, with more measures expected. Retail sales and factory output are already showing signs of recovery.
Japan's stock market had been lagging its North Asian peers, with benchmarks in China, South Korea and Taiwan having already erased their year-to-date losses, thanks in part to their success in containing the coronavirus. The Topix index is still about 6% away from breaking even for the year, though it is next in line among benchmarks in the broader Asia Pacific region to do so.
After a resurgence in virus infections, Japanese Prime Minister Shinzo Abe said earlier this month the country must try to avoid declaring another emergency, in order to soften the blow to the economy caused by the pandemic.
©2020 Bloomberg L.P.
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