SUMMARY

With the White Paper dedicated to Japanese market originally published in October 2020, it is a better-than-ever time to refresh our perspective on the largest developed market in Asia. We already covered in detail the major aspects that make this region so appealing for investors, including ongoing support from the Bank of Japan, falling debt levels, growing profitability and returns, and a major shift in corporate governance back in 2020 (HQAM White Paper)

Following the shock of the pandemic, hopes for a quick global recovery were shattered by the war in Ukraine and the consequences that followed. By this time, every investor is fully aware of the market situation in 2022 and most likely cannot bear hearing words “inflation, recession, gas prices, natural gas crisis” etc. anymore. Therefore, we rather intend to focus on whether Japan still offers attractive investment opportunities from the long-term fundamental Quality point of view.

While Japan’s monetary policy is indeed providing support to the financial system, still in 2022, we explore further development of Japanese companies. The facts are still all pointing in the same direction – Japanese corporate world is undergoing a transformation, which, in turn, is fueling the stock market.
After the pandemic and the attempted global recovery, positive dynamics in fundamentals remain intact – such as decreasing debt level and growing profitability and returns, which are rapidly catching up with international peers.

The wave of change in corporate governance we observed back in 2020 is a trend that is here to stay, pushing Japanese governance practices to be more aligned with international standards. In addition, we note that Japanese stock market continues to have very attractive valuations, also when compared to the U.S. and European markets, also in 2022. At the same time, growth rates of companies in Japan are not severely behind the ones observed in other developed markets or even better than some western regions.

Supported by the abovementioned factors, Japanese equities remain on the path to deliver robust long-term results, which can be magnified even further, when accompanied by careful quality stock selection.