Pictet Wealth Management continues to be overweight Japanese equities even as the country’s stock market begins the year on the back foot.
The benchmark Nikkei 225 index lost 3.32% in early trading on 4 January after falling nearly 15% in 2018.
Commentators have attributed Friday’s performance to negative market sentiment, low volumes, algorithmic trading and a flight to safe haven assets such as the Japanese yen and gold.
Pictet’s Asia CIO David Gaud believes that the market was mostly down on the back of poor performance posted by the US stock market on 3 January, after Apple cut its revenue forecast.
‘Japan recovered significantly the day after, on 7 January, on the back of strong US market rebound on 4 January. It doesn’t seem to be specific to Japan but more the trend affecting the entire equity asset class,’ he told Citywire Asia.
Gaud said Pictet’s overweight call in Japan has worked relative to the MSCI World since the end of August.
The Swiss private bank is currently investing in stocks in the consumer staples, healthcare, banks and materials sectors.
Gaud noted that the average return on equity for Japanese stocks is now approaching 10% versus 6% back in 2010.
Furthermore, he said that the current price-to-book ratio of Japanese equities is 1x, making their ‘value-to-return proposal attractive’.
‘Japan is one of the few countries recording meaningful growth in corporate capital expenditures, both in manufacturing and services,’ Gaud added.
Buybacks and dividends are also on the rise in the East Asian nation, as Japanese corporates get serious about shareholder returns. In fact, Pictet estimates that a blended strategy for client portfolios will return 5% on average in 2019 as compared to 1.5% in 2009.
Other private banks such as UBS, HSBC, LGT and DBS, meanwhile, are less upbeat about Japanese equities, and have given it a neutral weighting.