There have been too many false dawns in Japan for any investor to consider its equity market to be a sure thing. Given the depth of the country’s structural problems, it is certainly too early to judge whether Abenomics is working. But the Japanese equity market has had an excellent start to the year, and there are several reasons to think that it will be supported in the medium term: attractive valuations, decent earnings momentum and continued structural support from official sources.
The idiosyncrasies of the Japanese market may also hold some attraction for global investors hungry for diversification. Over the last three years, the MSCI Japan Index has had the lowest correlation with global equities of any of the major developed markets.
So love it or hate it, Japan could continue to be one of the better-performing developed equity markets this year.
Kerry Craig is global market strategist of JP Morgan Asset Management
