Japan’s equity market is a growth jurisdiction once again, said Olga Bitel, partner and global strategist at William Blair, during the Canadian Investment Review‘s 2024 Global Investment Conference held in April.
While this is very much early days for Japan, there are three opportunities on the horizon for its equity market: an expansion; substantial and real progress in rolling out and building the infrastructure for artificial intelligence; and the country’s long awaited exit from its long-term deflation doldrums.
Over the last decade, Japanese equities have handily beat those of the U.K. in terms of performance, she said, noting by late 2007-2008, Japan was finished de-leveraging the enormous debt it had incurred in the aftermath of the 1985 Plaza Accord.
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It took several decades to pay down that debt and establish social stability. “Deflation, disinflation and mild reflation . . . was the price [the Japanese] society decided to pay for it. Regardless of the reasons why, that process has largely worked itself out by the first part of the 2010s. . . . That process also [meant] a shift in the mindset of what to do with the cash piles [building up] . . . [that] has underpinned growth in Japan . . . in the last decade.”
Artificial intelligence forms the foundational structure for the current cycle in Japan, she said, noting AI technology underpins the nation’s infrastructure and will be integral to building up its economy in the future.
As well, Japan is serious about corporate governance and it’s starting to address its mediocre returns in a pretty fundamental way, said Bitel, noting the Tokyo Stock Exchange is also playing a non-trivial role. “Anybody who is trading at low price to book ratios are encouraged and mandated to come up with a plan to address this in a non-financial engineering sort of way. And we’re starting to see the fruits of that labour borne out.”
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She highlighted India as a similar example of a country that saw an economic resurgence and which has been enjoying a massive liquidity boom from its domestic investor base over the last decade. “That’s why we’re seeing valuations in many of the darling companies of 30, 50, 70 [to] 100 times earnings.
“Anybody who is discussing high valuations in Japan today relative to 12 months ago or 24 months ago will probably be relegated to the dustbin because those valuations will move a lot higher.”
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