“Earnings and valuations both look very attractive in Japan, and the economy in Japan is performing very well. We think the weakness in the first quarter in Japan is going to start to reverse, and we’ve started seeing that over the last few weeks, and that should generate some very attractive returns for investors,” said Norman Villamin, chief investment officer of private banking at UBP.
“Right now, underweights in Japan are actually quite large. Combining that with the idea that the economy is doing well, earnings are doing well, we expect positioning and flow to start to come and buy this market,” he said.
However, a key hurdle for Japan — and why the market underperformed in the first quarter of 2017 — has been the strength of the yen. Such strength is merely supported by the fact that investors view the yen as a safe haven currency, and is not tied to fundamentals in the Japanese economy.
“Now that French presidential candidates, Emmanuel Macron and Marine Le Pen have moved on, let’s assume that Macron wins, this headwind to the yen should start to dissipate and the fundamentals can start coming through, and we’ve been starting to see some of the money flow back to Japan. Japan has done quite well since the French elections, so we think a lot of dynamics are coming in place in favour of Japan as we move into the summer,” Villamin said.
The Japanese yen this year reached a high of $0.009223 in mid-April, but has since fallen to its current level of $0.008922.
But it’s not just Japan where Villamin expects to see good returns. Emerging markets are also expected to continue to perform well during the coming months in 2017, with key markets like Brazil and India already doing well.
“We went into the year long emerging markets. We thought the valuations story looked very good … and what’s really helped emerging markets has been this upside surprise we’ve seen in Chinese growth and what we’re starting to see in Chinese earnings.