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Japan's good value creates alpha opportunities

Ivailo Dikov
Ivailo Dikov10/13/2022 01:57 PM GMT+08  • 5 min read
Japan's good value creates alpha opportunities
Japanese corporates have remained resilient despite the pandemic / Photo: Bloomberg
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Japan’s companies are among some of the most cash-rich globally. Equally, some of the most attractive developed market valuations are found in Japan. Investors willing to look beyond the economic headlines will discover a market of stocks that is attractive on many fronts.

For many, Japan is typically a low-growth economy with a rapidly ageing population, both of which keep the lid on domestic consumer spending. The country’s ability to attract investors thus has been low since its stock market hit an all-time high in 1989. Yet, Japan has always been a corporate — not an economic — revival story. There is a very compelling corporate reform revival story that is ongoing.

Another critical point is that Japanese corporations have remained resilient despite the pandemic. Gradual but steady corporate restructuring over the last decade has resulted in higher operational efficiency and improved trend profitability — something relatively well known but is yet to be fully recognised by international investors. We expect the benign impact of the reforms to continue, justifying a strategic allocation to Japanese equities in portfolios.

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