InvestIdeas

Headwinds are growing for Japanese equities including deteriorating global growth and concern the era of yen weakness that has bolstered exporters’ earnings may be nearly over as the central bank comes under pressure to tighten policy.

Conversely, optimism is building that Beijing’s efforts to bolster the economy and local equity markets will help end a slump that has made Chinese equities among the world’s worst performers this year.

Another risk for Japanese shares is the heavy positioning by global funds. Overseas investors have bought a net US$30.7 billion (RM145.2 billion) of local stocks this year through Oct 27, on track for the biggest year of purchases since 2013.

Any downdraft in Japanese stocks may accelerate if the yen starts to strengthen. The currency has plenty of room to appreciate as it’s tumbled almost 13% this year and is close to a three-decade low.

Companies in the CSI 300 Index will see earnings grow an average 22% over the next 12 months.

The CSI 300 Index is trading at 10.5 times forward earnings, below its five-year average of 12.4 times. The Topix trades at 14.3 times, in line with its five-year mean.