Japan's Market Performance Deserves More Love - UBP

Tom Burroughes

14 May 2021

The Japanese stock market has outperformed major rival countries’ equities in 2020 so far this year, while the COVID-19 pandemic has obscured this result. Further structural reforms in the Asian country mean that equities could post further gains, according to a White Paper from growth for FY2021,” it continued.

The private bank went on to say that rising US 10-year Treasury bond yields – which can compress valuations on Japanese and other countries’ equities – will not have enough force to offset the improvement in Japanese corporate earnings.

In 2014 and 2015, Japan introduced new stewardship and corporate governance codes, respectively, and is revising such measures this year. The country is also changing stock market listing rules, tightening governance standards on large-cap stocks.

The Tokyo Stock Exchange is slated for a big change: Japan Exchange Group plans to cut the number of market segments, create new listing terms and blend five divisions into three sections. A central aim is to overhaul the Topix market so that it is a much narrower index of high-performing firms.

“We are convinced that further corporate governance improvements will be made, and corporate earnings forecasts should continue to be revised upwards because of a better-than-expected recovery in the real economy, in particular in China and potentially in the US, too,” UBP said.

“As 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,” it concluded.