However, data from Spiva (S&P Indices versus Active) research challenges us to reconsider the consensus perception of Japanese equities as a beta market. The data strongly suggests that the Japanese equities market stands out as one of the most attractive destinations for alpha generation. Over the past 15 years, 22% of active equity managers in Japan outperformed their benchmark. This contrasts with 11% for the US and 8% for Europe. From this perspective, Japanese equities stand out as a relatively attractive source of alpha for global portfolios.
We are now three years into a regime change for Japanese equities and global investors are taking notice. The normalisation of the Japanese economy, after over three decades of deflation, is firmly on track and the corporate reform movement is now entrenched. As global investor appetite for Japanese equities rebounds from near-decade lows, it may be an opportune time to reassess the investment paradigm for Japanese equities going forward.
The consensus view for well over the past decade has been that Japanese equities were essentially a proxy for the global economic cycle or a beta play. This view appears reasonably supported by the fact that around 60% the Topix benchmark were companies with significant earnings from overseas. In contrast, corporate earnings from the domestic economy were dulled by chronic stagnation and pervasive deflationary sentiment.
