Investments

UBP Whitepaper - Why the Japanese Market is Performing Well Again

Though under the radar since the onset of the global pandemic, Japan’s equity markets have outpaced major developed market equities both in 2020 and year-to-date in 2021 as the world seeks to transition to a post-pandemic recovery.

Japan: positioned for a global cyclical recovery

  • Historically, Japanese equities have generated high beta for global economic recoveries in major developed market regions.
  • Japan presents an excellent opportunity for stock selection- driven alpha and, at a minimum, favours active solutions over index-oriented solutions.

 

Can the good performance of Japanese equities be sustained thanks to steady improvements in governance?

  • Since the introduction of the Stewardship Code in 2014 and the Corporate Governance Code in 2015, there has been a slow but steady improvement in governance standards.
  •  The new listing criteria will tighten governance standards for large-cap stocks listed on the new “prime” section of the exchange.
  • The short-term revival for Japan and its long-term target to reform governance should together provide solid grounds to reconsider allocating to Japan.

 

Looking ahead

  • The Japanese equity market has already undergone a rapid recovery in 2021, it is hard to envision any further increase in prices.
  • However, we believe we will go on seeing stable growth as the market factors in an end to the pandemic by FY22 and we should continue to reap the rewards of improved governance.

 

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