The earnings outlook for Japanese equities is improving faster than those in Europe and the US, an asset manager has revealed.
There have been almost four upgrades for every downward revision on the Topix since the start of 2023, according to Asset Management One. This compares to around one-for-one in the S&P500 and 3.6 for each downgrade in Europe’s Stoxx 600.
And Japan-focused buyout funds are ready to pounce.
Indeed, private equity funds targeting the land of the rising sun are on course to raise twice as much as they did last year.
They secured commitments of $7.9bn (£6.2bn) in the first nine months of 2024, eclipsing the $4.4bn (£3.4bn) pledged during the whole of 2023, according to private equity placement agent MCAM Group.
They could be targeting companies that rely on domestic demand.
Japan’s economy has exited a long period of deflation, with real wage increases and growing consumer spending expected to fuel further upgrades, believes Hitoshi Asaoka, a senior strategist at Asset Management One.
The long-awaited economic recovery is driving the surge in fundraising for Japan-focused buyout funds, said Lars Bjoergerd, MCAM Group’s managing director.
“Confidence is building that Japan has finally shaken off deflation and decades of stagnation,” Bjoergerd said. “There is a healthy pool of high-quality companies that are trading at sensible valuations.”
Then there are the government’s corporate governance reforms, which are designed to make companies more shareholder friendly.
“A shift in the corporate governance culture in Japan towards delivering shareholder value also makes for a much more welcome market environment for PE funds,” Bjoergerd said.
But it could be a different story for export-focused corporates, such as car makers. There are concerns that the stronger yen resulting from the economic recovery may impact their earnings.
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