Pulais: Japanese stock valuations are attractive and significant investment opportunities still exist
Pru Life believes that Japanese stock valuations have not excessively expanded relative to historical levels and remain attractive, with significant investment opportunities in the next three to five years. The Japanese stock market benefits from the trade agreement with the United States and the potential interest rate cuts by the Federal Reserve, leading to accelerated economic growth and gradually forming inflationary pressures. Corporate governance reforms and large-scale share buybacks create opportunities for investors, with financial and industrial stocks expected to benefit from high interest rates and increased government investment
According to the Zhitong Finance APP, ProShares Global and Japanese stock investment portfolio expert Daniel Hurley shared his views on the Japanese stock market. Since the Liberation Day in April, the Japanese stock market has recorded significant gains, driven by multiple factors. The primary and most important factor is the trade agreement reached between Japan and the United States, with tariffs set at 15%, which is far lower than the previously threatened 25%. Even more surprising to the market is that the automotive industry, which accounts for 80% of the U.S. trade deficit with Japan, is also included in the agreement.
On the other hand, the market anticipates that the Federal Reserve will cut interest rates this fall, which is expected to benefit the performance of risk assets. As a highly open and cyclical economic system, Japan is expected to benefit from a lower interest rate environment.
In addition, the Japanese domestic economy is gradually breaking free from the zero inflation and zero growth predicament of the lost decades, with inflationary pressures gradually forming and economic growth accelerating. This change is expected to stimulate savers and investors to shift their assets from cash and fixed-income instruments to the stock market. It is worth mentioning that the corporate governance reforms that have been continuously improving since 2012 are now in full swing, with large-scale share buyback plans being launched one after another. This creates significant opportunities for investors who can identify attractive targets, potentially leading to considerable returns.
Nevertheless, relative to historical levels, the valuation of Japanese stocks has not seen excessive expansion and remains attractive compared to other global markets. ProShares maintains a constructive view on the Japanese market for the next three to five years, believing that significant investment opportunities still exist. In addition to the aforementioned factors, Japan has advantages in structural investments in defense and the semiconductor industry.
The trend of corporate governance reform is affecting various sectors of the stock market, but the reform intentions in some industries are noticeably stronger. This is a key consideration when identifying investment opportunities, as it is necessary to discern which industries and companies are more actively promoting reform and optimizing operations. Looking at a broader perspective, financial stocks are expected to benefit from a high-interest environment. As Japan emerges from thirty years of deflation, the financial sector is expected to benefit from higher interest rates and a steeper yield curve.
Additionally, industrial stocks are expected to benefit not only from corporate governance reforms and strong global economic growth but also from increased government spending and investment, especially companies related to the defense industry, which are expected to benefit from defense spending commitments from NATO member countries such as Japan and Australia
