2019 is poised to be a good year for Japanese risk assets in general and Japanese small cap equities in particular…….
By Jesper Koll, Head of WisdomTree in Japan
In fact, against a backdrop of rising US rates and growing equity market volatility, Japanese small caps may prove to be a great place to hide in 2019.
Of course, Japan’s overall market is very dependent on global economic fortunes and as much as 64% of TOPIX earnings depend on overseas sales.
Therefore, Japanese large-cap performance will always depend on the US and Chinese business cycles.
Unfortunately, neither the world’s largest nor the second largest economy is likely to accelerate significantly in the coming 9-15 months.
Against this, Japan’s domestic demand is in a multi-year structural uptrend, led by rising domestic consumer spending and, importantly, a forceful re-investment cycle by small and medium sized companies rushing to upgrade their local capital stock.
This cycle is not affected by global trade uncertainties and the principal beneficiaries are Japan’s small cap companies.