Japan equity: top performer in 2023; remains attractive option for 2024

Tuesday 13 February 2024

Cross Asset

Japan equity: top performer in 2023; remains attractive option for 2024

February 2024 | Three key arguments support the Japanese market: (1) A recovery in profits (2) A strong incentive from the Tokyo Stock Exchange for companies to improve their capital efficiency and (3) The shift out of deflation is boosting a market rerating. The risks to these positive arguments are mostly linked to the yen. A strong comeback by the yen, should global equity volatility increase sufficiently in 2024 to encourage the unwinding of carry trades, would weigh on the performance of Japan's equities in local currency It would penalize profits and, everything else being equal, slow the process of increasing inflation, weighing on valuations at the same time.

01 | Japan's equity market is at a historical high in total return terms; in price return terms it is at its highest level in almost 34 years.

02 | The "easier part" of the disinflationary process is past, and the path to bringing core inflation back to target will require a substantial moderation in demand and growth.

03 | The reforms introduced by the Tokyo Stock Exchange in March 2023 should continue to produce positive effects in 2024.

PowerPoint Presentation

Important Information

Unless otherwise stated, all information contained in this document is from Amundi Asset Management as of February 12, 2024 . Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the [author] and not necessarily Amundi Asset Management and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product or service. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not indicative of future results. Amundi US is the US business of Amundi Asset Management.

RO ID# 3388899
©2024 Amundi Asset Management

Other news

12/23/2024 Cross Asset

Germany’s Path Ahead

German real gross domestic product has been stagnating for five years (up by just 0.1% since 2019) as a result of several factors. Notably, its automotive sector is in crisis and global trade is no longer as supportive of its exports as it was in the past. Germany is also facing a number of challenges simultaneously: industrial competitiveness is suffering from rising energy costs and increasing competition from high-quality products from China. Additionally, the rapid ageing of its population – faster than in the rest of the eurozone – is also eroding its economy’s potential growth, estimated at 0.8%. Furthermore, if US tariffs are implemented, they could cost the German economy 0.6pp of growth, according to the Bundesbank. Disagreement over the budgetary measures to be taken to deal with threats and challenges is largely responsible for the break-up of the ruling coalition.

10/10/2024 Cross Asset

A call to action for Europe's competitiveness

A recent report in Europe shows the region's productivity and investment gap with the United States is widening, and a similar trend is emerging in connection to China. The risk of Europe becoming irrelevant is escalating, particularly in light of advancements in the digital economy and artificial intelligence (AI). In the US, the Fed gave strong forward guidance on rates, which is in contrast to its recent approach of staying data dependent on inflation. This, coupled with some concerns on growth, led us to lower our terminal rate expectations. Its 50bp cut underscores the Fed's willingness to pivot after the recent labor market softening and diminishing upside risks to inflation. We expect further 50bp cuts by year-end.

09/17/2024 Cross Asset

Japanese yen: what's next?

A series of weak US data in July questioned the market narrative of a soft landing and brought back fears of recession. The rise in the July unemployment rate to 4.3% (latest reading in August is 4.2%) triggered a significant market concern about a possible weaker-than-expected US labor market, raising the risk of an impending recession. We do expect a significant slowdown of the US economy, but not a recession. We expect a significant deceleration in the next few quarters, consistent with a broader weakening of many labor market indicators.

See more news