JPMorgan Strategists Highlight Japanese Market as Key Overweight
JPMorgan strategists have identified the Japanese market as a key overweight (OW) in their regional allocation, highlighting its strong investment potential. The decision to upgrade Japan to OW status in December 2022 was driven by anticipated growth and profitability drivers, such as the Tokyo Stock Exchange reform. This reform is expected to boost corporate profitability and increase returns for shareholders.
The significance of this upgrade lies in the fact that many Japanese stocks are currently trading with net cash and below tangible book value. Despite Japan already being a consensus OW, the strategists believe that investment flows into the country are still in the early stages and have the potential for substantial increases. This situation is reminiscent of previous periods of significant stock market gains.
The positive outlook for the Japanese market also includes continued progress in market reform, potential inflow from foreign and domestic investors, and prolonged yen depreciation. These factors contribute to an optimistic view of Japan’s investment landscape.
Turning our attention to Europe, the focus shifts to the United Kingdom, which is currently trading at a historical discount. While the UK outperformed in 2022, it has faced challenges in 2023 that have resulted in record low levels for UK equities. The UK market, known for its low beta, could benefit if equity markets become more volatile. Additionally, with the highest dividend yield among all markets at 4.3%, the UK market presents a unique opportunity for investors.
One factor that could drive growth in the UK market is the commodity-heavy nature of its industries. Last year’s underperformance in the Materials and Energy sectors positions the UK for potential growth if commodity prices stabilize. The market outlook for China could also indirectly influence the UK market, particularly in the event of short squeezes in China.
Overall, JPMorgan strategists see promising investment opportunities in both the Japanese and UK markets. These assessments are supported by various growth drivers and market conditions that favor these regions. Investors would do well to pay attention to these developments and consider incorporating these markets into their investment strategies.
Analyst comment
Positive news for the Japanese market, as JPMorgan strategists identify it as a key overweight with strong investment potential. Anticipated growth and profitability drivers, including Tokyo Stock Exchange reform, are expected to boost corporate profitability and increase returns for shareholders. The market is still in the early stages of investment flows and has the potential for substantial increases, reminiscent of previous periods of significant stock market gains.
For the UK market, it is currently trading at a historical discount and could benefit from increased volatility in equity markets. The commodity-heavy nature of its industries and potential stabilizing commodity prices could drive growth. JPMorgan sees promising investment opportunities in both markets and advises investors to consider incorporating them into their strategies.
