Asian stock markets see the strongest annual start in history, with both Japanese and South Korean stocks surging.

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Asian stock markets started 2026 with historic strength, as several major indices hit record highs. The MSCI Asia Pacific Index rose about 4% over the first four trading days of the year, marking the best start since records began in 1988.

Japanese stocks led the rally, with the TOPIX and Nikkei 225 indices rising 3.8% and 4.3% respectively over the first two trading days of the year—the largest increase in the first two days since 1990. On January 6th, the Nikkei 225 closed at 52,518.08 points, setting a new closing record high. The Korean stock market also strengthened, with the KOSPI closing up 1.32% at 4,525.48 points, also a record closing high.

Raymond Sagayam, Managing Partner at Banque Pictet & Cie SA, stated that emerging markets such as Asia are benefiting from attractive valuations and the locational advantage of being proximate to the artificial intelligence industry chain. Market analysts believe that the strong performance of Japanese stocks is supported by active buying from overseas funds and domestic individual investors, coupled with expectations of improved corporate earnings and sustained policy support.

Foreign funds pouring into large cap stocks; retail investors add fuel to the rally

The current rally in Japanese stocks is mainly led by large blue-chip stocks. Hideyuki Ishiguro, Chief Strategist at Nomura Asset Management, pointed out: “Compared to US equities, Japanese stocks still have relatively low price-to-earnings ratios, and overseas investors have shown strong interest in core premium stocks.”

This phenomenon reflects a structural adjustment in global fund allocation. Against the backdrop of persistently high valuations in the US market, the relative valuation advantage of the Japanese market is becoming a key factor drawing in international capital.

Retail investors have also become an important force pushing the market higher. Analysts note that the Japanese stock rally has been further fueled by domestic retail investors, who are topping up their tax-free NISA accounts for the New Year. Tsutomu Yamada, a market analyst at Mitsubishi UFJ eSmart Securities, said: “After the previous day’s sharp rise, some individual investors may be motivated to enter the market due to a ‘fear of missing out.’” This anxiety about missing upward opportunities further strengthens short-term buying momentum.

Multiple favorable factors support the rally, but risks remain

The strong performance of Japanese stocks benefits not only from the resilience of US markets under expectations of interest rate cuts, but also from improved domestic corporate earnings, strengthened corporate governance, and expectations of economic stimulus support from Prime Minister Sanae Takaichi.

Masayuki Doshida, Senior Market Analyst at Rakuten Securities, pointed out that current stock prices have largely reflected widespread market expectations of a recovery in corporate earnings. He stated: “If actual earnings outperform expectations, the Nikkei 225 could hit 55,000 points, or even rise further.”

Despite the strong start, concerns persist. Rakuten Securities analyst Doshida pointed out that the sustainability of the AI sector rally and geopolitical uncertainties remain the major risks. He specifically mentioned the situation in Venezuela and said: “If the situation develops further, it could turn into a geopolitical risk point worth vigilance.”

Market participants need to closely monitor these potential risk factors as they may pose substantial challenges to the current upward trend.

Risk warning and disclaimerThe market involves risks, investment should be made cautiously. This article does not constitute personal investment advice, nor does it take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their specific circumstances. Investment based on this article is at your own risk. ```