PSA Japan Stock Market Strategy for the Q3

Heading into Q3, the Japanese stock market has made a strong bet at an index level that the economy will enjoy something akin to a V-shaped recovery. At a sector level, it has hedged its bets, combining a rebound in cyclicals with a continuation of the domestic tech / online revolution. The problem is that the stock price moves are predicated on an economic outcome that is far from certain and which has even been rendered less likely by recent data points.
Ahead of clarity about the direction of the economy, it may well make sense for investors to revisit defensive names, and particularly those that have an attractive combination of value and high alpha, as outlined in Table 2 on Page 10. From a tech sector viewpoint, we believe that the market has so far only paid lip-service to the impact of 5G which, as it is rolled out in Japan from here on, should move into the centre of the market’s gaze. In particular, we see 5G as a gamechanger for AI, so we are adding to our AI names in our Focus List, as well as some more mainstream plays.