Japan stock market nears all-time high – HL’s Cook assesses whether the run can continue

by | Jun 13, 2023

Japanese flag

-The Nikkei 225 has surpassed 33,000 – levels not seen since 1990

-Multiple factors have increased investor appetite to invest in Japan’s stock market

-Warren Buffett’s recent stamp of approval has caused even greater focus on the region

Hal Cook, senior investment analyst, Hargreaves Lansdown, comments on the latest market moves and highlights three Japan funds he and his team believe are well placed to capitalise on opportunities:

“Interest in the Japanese stock market is at its highest for a long time, with professional and retail investors alike choosing to add some additional exposure to the country. Since the wobbles caused by the banking sector shocks in March, the Japanese stock market has bounced to near all-time highs, putting its performance in a position to rival the S&P 500 which has been bolstered by the likes of Nvidia and the AI investment boom.

We are seeing lots of fund managers of multi-asset and global equity funds increase their positions in Japanese equities recently. The combination of relatively strong economic data (GDP growth for Q1 2023 was recently upgraded to 0.7%), inflation appearing to be a bit sticky (it increased between March and April where other countries are seeing declines), continued ultra-loose monetary policy and ongoing corporate governance reform all seem to be coming together to give appeal to investors.

However, it’s likely that you’ve heard this before about Japan, which has had many false dawns over the last decade. This begs the question: ‘is it really different this time?’ Well, Warren Buffett thinks it is, with his very public trip to Japan in April and confirmation that he had increased his investments in some of the country’s companies seemingly acting as a catalyst for others to join him. Similarly, Japanese equity managers we have spoken to recently echo his enthusiasm, noting both an increase in potential client enquiries for their funds as well as net inflows from existing clients.

But is this a momentum trade or a ‘bubble’? It’s often uncomfortable when it feels like you are ‘jumping on the bandwagon’ as it’s quite possible you’ve already missed most of the gains. However, the number of potential positive factors for this market over the next few years, meaning investors with a long-time horizon could be rewarded, even if there is a correction downwards over the short term. Not least that unlike other developed markets, Japan has not been raising interest rates – meaning cash has significantly less appeal against inflation. Officials have pointed to the $7trn sitting in cash in Japan – if that flows towards the stock market it will be a welcome accelerant.”   

3 Japan funds

FSSA Japan Focus

  • This fund is managed by a team held in high regard for a number of years.
  • It remains small and nimble enough to pounce on new opportunities as they arise.
  • It’s performed exceptionally well since launch, boosted by the managers’ astute stock-picking.
  • The managers look for high quality companies that are dominant in their industries. This gives it a growth style bias.

Man GLG Japan Core Alpha

  • Jeff Atherton has built over three decades of experience investing in Japanese equities.
  • He uses a clear, disciplined approach, which has served the fund well over the long term
  • This fund is an excellent way to invest in the world’s third largest economy.
  • The managers’ contrarian approach is often referred to as value investing.

iShares Japan Equity Index

  • BlackRock is a pioneer in index investing and has a great record of managing tracker funds.
  • This fund is a good option to get access to a broad spread of Japanese companies.
  • This fund is an easy way to invest in a range of Japanese companies at low cost.

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