Japan’s equity market thrives on four key long-term drivers reshaping its investment landscape, according to Jumpon Saimala, principal chief executive.
Structural Reforms Boost Shareholder Returns
Japan implements major structural reforms to enhance capital efficiency and corporate governance. Companies now prioritize shareholder returns aggressively, delivering higher ROI, improved profitability, and record share buybacks.
End of Deflation Restores Pricing Power
The prolonged deflationary period has concluded, enabling firms to regain pricing power. This shift drives corporate earnings recovery and higher return on equity. Japanese companies maintain stronger balance sheets compared to many US and European peers.
Japanese firms achieve solid earnings per share growth and increasing dividend payouts, bolstering long-term market confidence, Mr. Jumpon states.
Attractive Valuations Signal Upside Potential
Despite recent rallies, Japanese equities offer compelling valuations. Forward EPS growth projections for the next 12 months exceed those of the US, with dividend growth matching American firms.
“Japan enters a transformative phase that unlocks sustainable earnings growth and stronger shareholder returns across sectors, while valuations remain attractive relative to other developed markets,” Mr. Jumpon notes.
Sanaenomics and NISA Drive Growth
The “Sanaenomics” agenda accelerates expansion through public-private partnerships and investments in 17 key industries, including semiconductors, AI, and automation.
Japan’s substantial household cash reserves increasingly channel into equities via the government-backed Nippon Individual Savings Account (NISA) scheme, which offers tax incentives to promote long-term investments and economic stimulus.
Recommended Investment: Principal Japanese Equity Fund
Principal Asset Management advises the Principal Japanese Equity Fund (PRINCIPAL JEQ), allocating at least 80% of its net asset value to the DWS Concept Nissay Japan Value Equity master fund.
Managed collaboratively by DWS Investment and Nippon Life Asset Management—with DWS as fund manager and Nippon Life handling portfolio duties—the fund targets high-quality Japanese value stocks in sectors like healthcare, pharmaceuticals, and industrial manufacturing. It also pursues under-researched small- and mid-cap opportunities for hidden growth.
Nippon Life Asset Management employs a bottom-up, forward-looking strategy, screening over 4,000 firms to select 60-100 stocks with robust fundamentals and steady cash flows.
As of March 31, the master fund records annualized returns of 29.8% over one year, 25.1% over three years, and 16.5% over five years.
