“There is one stock market, however, where the balance between the outlook and valuation looks strangely compelling.”
Tom Stevenson, Investment Director at Fidelity International. Daily Telegraph 3rd September 2018.
Japan is the world’s third largest economy and the largest creditor nation. After almost twenty years of low growth and intermittent deflation, an economic recovery has begun to take hold, driven by regional growth, a flexible exchange rate, and most importantly significant structural reforms which will improve financial transparency and rationality. Efforts in the past decade to improve corporate balance sheets and reduce corporate structural inefficiencies have finally produced a healthy overall starting point from which to grow.
Furthermore, Japanese reflation is no longer a hope but a seeming certainty which should finally lift domestic demand and long-term economic growth. With the possibility of capital rationalisation from such sources as a privatised postal savings system, and as dividend yields continue to outpace government bond yields relative to other economies globally, the argument for a much higher equity index seems solid.