Key investor takeaways: Pay attention to Japanese equities



For now, we continue to expect a world in which U.S. growth overshadows that of other developed countries, resulting in a strong dollar and weaker commodity prices. However, this situation could in turn lead to extraordinary stimulus measures by other central banks which, in turn, could benefit their stock markets. Accordingly, we continue to favor Japanese stocks, which should enjoy the tailwind of aggressive monetary policy by BoJ, much as the U.S. has had from the Fed for the past several years.

Market Realist – Consider the following important takeaways for investors.

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  • U.S. growth is likely to remain robust even as other developed economies (EFA)—like the Eurozone (EZU) and Japan (EWJ)—reel under a slowdown. Investors often consider bad news to be good news. Equity markets welcome an easy monetary policy. So stimulus measures are likely to lift both Japanese and European equity markets. Since the markets are currently trading at a discount to U.S. equities (SPY), they look like good investment opportunities.
  • U.S. economic growth, coupled with soft growth in global markets (QWLD), is likely to keep the U.S. dollar (UUP) strong. Meanwhile, downward pressure isn’t likely to abate from commodities like gold (GLD) and silver (SLV).

GPIF asset allocation

  • Japanese equities continue to look attractive. The stimulus is likely to elevate Japanese equity prices. Japan’s government pension investment fund (or GPIF) will also change its asset allocation. This change will reduce its allocation to government bonds from 60% to 35% and increase its investment in domestic equities from 12% to 25%. This move is likely to be mirrored by other pension funds. It could cause a rise in Japanese stock prices. The graph above compares GPIF’s old and new asset allocation mix.

Read our series The Bank of Japan’s shock stimulus: Effects on Japan-focused ETFs to learn more about the effects of the stimulus on Japanese equities.


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