Conventional wisdom has its place…
It’s often initially informed by facts and truths, and rings accurate for a time. But equally often you find that consensus narratives and conventional wisdoms have a use-by date. Their usefulness expires as the facts change (but minds don’t).
Japan is a perfect example of this.
For years Japan has been written-off as a ticking debt & demographics timebomb, a deflation disaster, and the archetype of a mature economy in decline.
But things have changed on multiple fronts and investors have not kept up with the facts …and as such, many have missed the big beautiful breakout in Japanese stocks.
For those who’ve yet to update their fact-base — after decades of stagnation, Japan has seen significant improvements in its economy (e.g. rising labor force participation offsetting demographic headwinds, benefits from friend-shoring, booming jobs growth, surging industrial capex, reviving real estate market, and cyclical upturn [n.b. see bonus chart]).
On top of that for Japanese equities, thanks in big part to Abenomics, there has been a significant improvement in corporate governance and we’ve seen rising profitability, substantial share buyback activity, and as a key litmus test: a breakout to new highs for the Nikkei 225 (it only took 35 years…!).
Meanwhile, foreign investors are still running very light allocations to Japanese stocks, valuations are cheap vs history, vs bonds, vs the upshift in long-term nominal growth, and vs global peers. In short, we’re still early here.
So I say: believe the breakout.
Key point: Japanese stocks are breaking out and there is room to run.
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