A Lasting Rally After Decades Of Stagnation?

This year, Japan's stock market has experienced a significant surge, leading money managers to believe that this rally could have staying power. Several factors, including corporate policy changes, an endorsement from Warren Buffett, and attractive valuations, have propelled Japanese stocks to become one of the top-performing markets globally in 2023. The Topix index in Japan has gained an impressive 25% year-to-date, surpassing the performance of the S&P 500, Stoxx Europe 600, and the Shanghai Composite.

  • While historical disappointments have haunted Japan's stock market, with no record highs since 1989, this time, many investors and analysts have reasons to be optimistic.
  • Japan's economy is on an upswing, and the long-standing issue of deflation appears to be receding, with inflation hitting or exceeding the Bank of Japan's 2% target for the past year.
  • Foreign investors are increasingly expressing interest in Japanese investments, with major banks like Goldman Sachs Group and JPMorgan Chase reporting a surge in inquiries.

Room For Growth

Jeff Atherton, head of Japanese equities at Man GLG, describes the current market as one of the best in decades, echoing the excitement last seen during the era of Prime Minister Shinzo Abe's Abenomics. Goldman Sachs's chief Japan equity strategist, Bruce Kirk, sees room for further growth, especially if the yen strengthens against the dollar, attracting more American investors.

  • Kirk emphasizes that a crucial factor contributing to the rally is Japan's push to transform its corporate sector.
  • The Tokyo Stock Exchange is urging listed companies to enhance their valuations and increase shareholder returns, while government guidelines aim to boost mergers and acquisitions within Japan.
  • Although there is more work to be done, the willingness of companies to self-assess and adapt represents a significant shift in a corporate culture historically resistant to change.

Signs of change are already evident, with rising wages and companies committing to record share buybacks. These developments, coupled with Japan's deliberate efforts to create inflation, are viewed as positive for risk assets and long-term market prospects.


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Photo by Jezael Melgoza / Unsplash.