The Nikkei 225 broke above 60,000 and reached year-to-date highs in April, but investors shouldn’t worry about a repetition of last year’s tech-driven slump, according to reports. The Nikkei/TOPIX ratio has reached an all-time high of 16.2 as a result of the surge, which has been primarily concentrated on AI and semiconductor-related firms. According to Citi, “the rise in the N/T ratio in April can be almost entirely attributed to outperformance in the electric appliances and information and communications sectors,” which have significant Nikkei 225 weightings.

Similar dynamics are thought to have occurred in September and October of last year, when the Nikkei corrected and high-tech companies underperformed from November. However, Citi believes that a different result is more likely this time. “Unlike last November, the high-tech sector shows little sign of overheating, which suggests the risk of correction is not high,” the bank said. As proof that prices are still reasonable, the company cited a significant rise in worldwide semiconductor sales, an MSCI Japan IT earnings revision index that is currently above the overall market, and a price-to-earnings-growth ratio that is currently lower than that of TOPIX.

Citi anticipates that trailing equities will catch up and normalize the high Nikkei/TOPIX ratio instead of a tech-led selloff. The bank contended that investor interest is expected to shift from high-tech momentum names to industries including construction, real estate, banking, defense, and energy, all of which have substantial TOPIX weightings, if Middle East anxiety lessens.