Join +750K new investors every month who copy stock picks from billionaire's portfoliosSign Up Free

BlackRock encourages investors to 'redouble their bet' here

Published 22/05/2024, 10:52 pm
© Reuters.
TOPX
-

Investing.com - "We see an important role for Japanese equities in portfolios and a strong case for closing underweight allocations, due not only to the strategic investment case, but also to their diversification benefits. Japanese equities are relatively uncorrelated to other markets, with sub-50% correlation to most; only Chinese equities provide comparable levels of diversification."

How can you stay updated on new market opportunities? Try InvestingPro and find out! Subscribe HERE AND NOW and get almost 40% off a 1-year plan for a limited time!

In its latest market report, BlackRock (NYSE:BLK) analyzes the opportunities that Japan offers for portfolio diversification.

With Japanese inflation now at 2%, is the Bank of Japan (BoJ) moving away from its negative interest rate policy (NIRP) and on a path to normalization compared to other developed market (DM) central banks in Japan now? BlackRock analyzes 3 scenarios:

  • "Firstly, the growth backdrop appears challenged but not concerning, in our view. Final GDP readings for Q4 were revised higher and survey data and activity indicators, such as PMIs, point to a bottoming out of activity. The wage negotiation progress in March, resulting in a 5.3% rise in wages, suggests that a virtuous cycle of inflation is starting to take hold," the experts note.
  • "Secondly, we believe the BoJ’s shift towards positive policy rates should be taken as a step towards policy normalisation, not a tightening of financial conditions. We see this as a positive: Japan’s financial system is functioning at a level that doesn’t require constant central bank intervention. The policy shift has only been made possible by the hard-won return to inflation: we don’t think the BoJ will risk undoing this, meaning that policy will likely remain relatively accommodative," the managers add.
  • "Thirdly, while the end of yield curve control removes a guaranteed buyer from the bond market, we see potential for institutional investors that historically only bought bonds to rotate into equities as the new policy paradigm takes hold."

Reforms

"Increased focus on shareholder value is not a short-term trend, in our view: it represents the culmination of a decade of corporate reform driven by the Tokyo Stock Exchange. We think progress on shareholder reforms justifies a higher valuation premium for Japanese equities," they state.

"Meanwhile, the push to encourage domestic investors to participate in the equity market through favourable tax treatment offers another tailwind. With 55% of Japanese household assets in currency and deposits earning little or no interest and only 10% in equities (versus 39% and 20% in the US and eurozone, respectively) this could be a catalyst for a shift in domestic allocations to Japanese equities," the experts note.

"Japan has often been overlooked by international investors in the past. We see reasons for this to change, however, and double down on Japanese equities amid an inflation renaissance, corporate reform and increasing domestic investor participation," says BlackRock.

"Our analysis suggests that closing underweights to Japanese equities can significantly improve the average EMEA portfolio’s risk-return profile. We outline a range of ways to access Japan through index or alpha-seeking exposures," the analysts conclude.

How to keep taking advantage of market opportunities? Take advantage HERE AND NOW of the opportunity to get the annual InvestingPro plan. Use the code INVESTINGPRO1 and get a 40% discount on your 1-year subscription. Less than the cost of a Netflix (NASDAQ:NFLX) subscription! (And you'll get more out of your investments). With it, you'll get:

  • ProPicks: AI-managed stock portfolios with a proven track record.
  • ProTips: Digestible information to simplify a large amount of complex financial data.
  • Advanced stock screener: Find the best stocks based on your expectations, considering hundreds of financial metrics.
  • Historical financial data of thousands of stocks: So fundamental analysis professionals can dive into all the details themselves.
  • And many other services, not to mention the ones we plan to add in the near future.

Act fast and join the investment revolution! Get your OFFER HERE!

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.