24.01 Liontrust Views Winter 2024 - Flipbook - Page 10
JAPAN
THE LAND OF THE RISING SUN?
For the past three decades, Japan has been in an economic slump, with the stock
market having little attraction for most investors even though there have been periodic
predictions from some commentators of a sustained recovery. However, Japan
has recently has seen a renaissance in its fortunes, thanks to stock market
reforms and a surge in foreign investment. The Liontrust Multi-Asset team
raised its outlook for Japanese equities from neutral to positive in
its Tactical Asset Allocation review in the fourth quarter
of 2023. With predictions of a ‘transformative’
2024, is it time to look to the east?
Japan has been out of favour with investors
for a considerable time. First came the global
stock market crash of October 1987, which
began in the US but then hit all major stock
exchanges. However, in 1989, the Japanese
stock market peaked, and it has since failed
to reach, let alone exceed, that high.
In the 1990s, Japan suffered persistent
deflation, which saw the economy stagnate.
The country’s economy has also come under
pressure due to a rapidly ageing population
and fewer people entering the workforce.
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LIONTRUST VIEWS – WINTER
Meanwhile, the rise of China as the world’s
largest provider of mass-produced goods
overshadowed Japan’s ability to compete
on cost.
A number of other factors have also
combined to make Japan worth looking at
for investors wanting diversification for their
portfolio.
However, a closer look also shows that
Japan has done better than many realise.
The TOPIX – Japan’s equivalent of the
FTSE All Share or the S&P 500 indices –
bottomed out in 2012, but since then has
been climbing steadily and, in June 2023,
Japanese shares reached a 33-year high –
albeit some way off the peak seen in 1989.
Deflation to inflation
Japan has finally moved into an inflationary
environment after decades of deflation.
According to Trading Economics, the
annual inflation rate in Japan rose to 3.3%
in October 2023 up from 3% the month
before – although this is lower than the
four-decade high of 4.3% seen in January
