UBS Group predicts that the Japanese stock market has already entered a bear market and believes that it is still too early to determine that the Japanese stock market has already hit bottom. Nevertheless, considering positive factors such as inflation, wage growth, and corporate governance reform, the bank recommends that medium-to-long-term investors should not consider exiting the Japanese stock market at this stage.
According to the Intelligent Finance app, UBS Global Wealth Management's Chief Investment Office released a new report emphasizing that the main reason for the Japanese stock market's steep decline on August 5 was concerns about the US economic recession, strengthening of the yen, and pressure from leveraged retail investors.
The bank expects that the Japanese stock market has already entered a bear market and believes that it is still too early to determine that the Japanese stock market has already hit bottom. Nevertheless, considering positive factors such as inflation, wage growth, and corporate governance reform, the bank recommends that medium-to-long-term investors should not consider exiting the Japanese stock market at this stage.
UBS believes that due to the market's perception that the USD/JPY has yet to stabilize, there will still be short-term volatility in the stock market. Although many Japanese companies expect the average USD/JPY exchange rate to be close to 145, the bank believes that the exchange rate could fluctuate significantly and trigger wider revisions to earnings per share.
The bank is more bullish on specific sectors such as financial stocks and real estate, which have experienced nearly 25% pullbacks. The risk-return of the financial sector has improved, and the real estate industry, as a more defensive sector, remains attractive due to rising inflation and the potential for share buybacks. Investors are also advised to seek out high-quality growth stocks, seize opportunities in artificial intelligence, and achieve diversification through alternative assets.