6 Reasons to like Japan again

  1. Equity market momentum has been positive for the past two months. This momentum reflects a newly favourable flows momentum for Japan. Non-residents, but also domestic investors, are buying Japanese equities. The rebalancing of portfolios of major Japanese institutional investors is in progress. Mr Abe’s latest statement on the GPIF corroborate this
  2. Macroeconomic conditions are improving following the post-VAT slump, as reflected in soft data
  3.  EPS have started to rise again. They had overestimated the impact of the VAT hike
  4. Japan is the only equity market to be trading at a discount to the past 10-year average (fwd P/E @ 13.7x vs 15.8x)
  5. The implementation of structural reforms (labour market, energy, tax code, rural areas, etc.) is taking longer than expected. Now that the VAT hike is behind us, the government reshuffle of 3 September should provide new impetus
  6. The Japanese equity market is a collateral beneficiary of the change in expectations regarding the Fed
    1. The market has been spurned since the beginning of the year => potential for outflows is limited in the near future
    2. Rise in the dollar => decline in the JPY 

Source: BNY/Exane