Japanese equities power ahead… but can it continue?
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Japanese equities power ahead… but can it continue?

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Barbara Reinhard

Barbara Reinhard, CFA

CIO, Multi-Asset Strategies and Solutions

Blue Sky and Tall Buildings

Japan’s Nikkei 225 index surged 6.7% over the past week, hitting record highs following the ruling party’s selection of pro-business Sanae Takaichi as its new leader. Are you too late to catch the rally? Let’s take a look. 

The Takaichi administration—the first in Japanese history to be led by a female prime minister—is expected to pursue expansionary fiscal policies, which could slow the pace of rate hikes from the Bank of Japan and support equity markets. Thus, the underlying macro environment is likely to get only more favorable under the Takaichi administration, driven by accelerating corporate governance reforms, a shift toward sustainable inflation, and rising M&A interest. 

Valuations, too, remain attractive: the MSCI Japan index trades at a forward P/E of 17.3x and EV/EBITDA of 7.2x, well below the S&P 500’s 23.6x and 15.7x. In short, Japan’s reform-driven corporate landscape, improving macro conditions, compelling valuations and new pro-stimulus leader continue to support a compelling investment case for Japanese equities. 

Maverick Lin contributed to this article.

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Voya Investment Management has prepared this commentary for informational purposes. Nothing contained herein should be construed as (i) an offer to sell or solicitation of an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Any opinions expressed herein reflect our judgment and are subject to change. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (1) general economic conditions, (2) performance of financial markets, (3) interest rate levels, (4) increasing levels of loan defaults (5) changes in laws and regulations and (6) changes in the policies of governments and/or regulatory authorities. Past performance is no guarantee of future returns. The opinions, views and information expressed in this commentary regarding holdings are subject to change without notice. The information provided regarding holdings is not a recommendation to buy or sell any security. Strategy holdings are fluid and are subject to daily change based on market conditions and other factors. 

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