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Wealth Managers See More Equities Upside As Japan Mulls New PM

Tom Burroughes

13 September 2021

The resignation more than a week ago of Japan’s Prime Minister Yoshihide Suga appears to have made investors scratch their heads about what the future holds. Will the country continue with policies of fiscal and monetary expansionism, and supply-side reforms, or choose another path? 

Economists and investors think that Japanese equities will continue rising, although views differ on how significant future gains might be. 

: “Over the longer term, scepticism on corporate governance improvement remains but it’s something we strongly believe and experience on the ground; with that improvement, returns will likely increase and further attract foreign investors (who are currently underweight),” Daniel Hurley, portfolio specialist of the Japan Equity Strategy at the firm, said. 

“Returns of Japanese equities for the year-to-date have lagged, primarily as a result of three key factors. Firstly, Japan’s massive outperformance in 2020. Secondly, vaccinations have been slower than expected. Thirdly, concerns over the decision to host the Olympics as the country continued to grapple with the pandemic. But on a valuation basis, Japan looks cheap and, as it catches up with vaccinations, we believe the market will re-rate,” Hurley said. “We remain positive on the outlook for Japan. Over the medium term, Japan is one of, if not the most open and cyclical market. It’s closely aligned to the global economy – as the economy recovers post the pandemic, we believe Japan’s corporates will benefit from this recovery more than other regions and markets, while corporate governance reform remains very much on track and represent sa significant opportunity.”

Capital Econmics predicts that the MSCI Japan Index of the country’s equities will rise at an annualised rate of only around 4 per cent between now and end-2023.