Japan Stocks May Be Only Outperformers in Second Half: JPMorgan

(Bloomberg) -- Japanese equities may be the only asset class in the world to deliver better returns in the second half of the year than in the first, according to JPMorgan Chase & Co.

While most asset classes will probably only provide low single-digit returns for the rest of 2019, Japan's Topix index may return 6.6%, about double its 3.8% gain in the six months through June, analysts led by Joyce Chang wrote in a July 1 note, comparing estimated returns for global stocks, bonds, currencies and commodities. The bank last month upgraded Japanese equities to overweight.

Global stocks rallied Monday after Presidents Donald Trump and Xi Jinping agreed to revive talks in the U.S.-China trade dispute. Yet, even as the truce supports markets, returns will probably be muted in the second half of the year as the world's economies slip into sub-trend growth and as valuations remain high, the report said.

Japan may play catch-up after lagging other markets earlier in the year and with global funds relatively underweight on the country's assets, according to the analysts, who also cited Topix valuations as a reason for the market's attractiveness. The Japanese index trades at less than 1.2 times book value, compared with about 3.5 times for the S&P 500 Index.

At the same time, JPMorgan's analysts said they continue to prefer U.S. equities over European stocks because of better earnings momentum in the world's largest single market, and the popularity of stock buybacks among U.S. corporations.

The bank held a neutral stance across emerging market equities and credit, saying that less mature markets are more vulnerable to potential fall-out from the U.S.-China trade dispute.

Brazil, India, Indonesia and Thailand stand out among emerging markets, however, for their earnings resilience, the bank said.

To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Jason Clenfield, Teo Chian Wei

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