Japan is now the second biggest country in the MSCI All Country World Index and represents nearly over 5.5% of the equity benchmark globally. As we know, Japan has faced many domestic headwinds over time, and the entire world has shown a low-growth trend since the financial crisis of 2008. However, the equity market of Japan has always remained valued over time. This article will try to gain some real insights into the Japanese equity market.
Kavan Choksion Japanese equity performance
After World War II, Japan rose from the ashes and experienced steady growth over several decades to become the world’s second-largest economy in the 1980s. During the latter part of this growth, カヴァン・チョクシ pointed out the fact that Japan had upgraded significantly on its industrial base and transitioned fully into a very innovative manufacturing center from being the world’s workshop at one time.
By the 1980s, Japan experienced a speculative bubble in terms of assets which was fueled by the strengthening of Japanese currencies and the eased-up monetary policies. Once that bubble busted, Japan endured a debt-deflation spiral, which devastated the asset prices. There was also an aging demographic, a series of policy blunders that further exacerbated the difficulties. However, despite this long-lasting pain, the country still remained home to some of the top industry giants.
The equity market of Japan also had a substantial weighting to growth-sensitive sectors, which explains its underperformance over the last couple of decades. This special composition also had positioned the equity market in Japan to outperform if we enter into a period of growth and trend inflation, which aligns with the economic outlook.
In addition to the benefits from the global tailwinds, the equity market in Japan also benefitted from the growth in fiscal spending. Japan is one of the very few countries which expect to increase fiscal spending by about 10% of the overall GDP. The markets across Europe and the US had tightened their policies in response to the higher inflation threat, whereas the monitory policymakers of Japan used to welcome the higher levels of inflation based on the deflationary pressures that worked in favor of Japan historically. Japan had also been more conservative than other western countries in their approach to the global pandemic of Covid-19.
Equity Market of Japan
In comparison with that the US and global equity markets, various types of industries make up a bigger part of the equity market in Japan. Japan also has very significant exposure to sensitive materials. The equity market in Japan remains highly valued based on various measures. Say, for example, the Japanese market trades at a lower multiple compared to the equity markets in the United States. Also, a significant percentage of the equities in Japan are trading far below the book value.
However, カヴァン・チョクシ shows the fact that the price-to-earnings ratio of the equity market in Japan is so attractive compared to other peers. All these make the equity market of Japan so attractive and rewarding.