Dec 06, 2023 (investorschronicle.co.uk) - Few commentators would have bet on Japan being a stand-out equity performer on any level at the start of the year, as the country grappled with the long tail of the pandemic and impact of Russia’s war in Ukraine.
Add in ongoing tensions with a resurgent China and many investors would have been forgiven for giving the country’s equities a wide berth. What many may have missed is that a decent bout of inflation is exactly what Japan’s economy needed to throw off its torpor. A tougher operating environment in China for Western players also helped shift funds into Japanese IPOs and equity raises.
With the blended Tokyo Stock Price Index (Topix) exchange up by an impressive 22 per cent in the past 12 months, and Japanese companies enjoying one of their best earnings quarters in 30 years, talk of a return to growth after decades of stagnation does not seem so farfetched.
Analysts at Goldman Sachs credit the performance of equities to three key factors. Firstly, the Bank of Japan has stayed dovish as inflation year on year has fallen back to 3 per cent, compared with 3.7 per cent at this point in 2022, and its negative interest rate policy is so far unchanged – the current rate is -0.10 per cent. The trigger for a raise will be solid evidence that wage growth is now ahead of inflation, which would justify a more aggressive policy.
The second criteria for being positive on equities is wage growth, and there is some evidence that Japanese wages are starting to grow again after stagnating alarmingly since the 1990s. ...continue reading
