Why Blackrock is bullish on Japanese stocks

The world’s largest asset manager is aggressively buying Japanese stocks, predicting the country will mostly avoid the ongoing impacts of the war in Ukraine.

Blackrock has revealed its adding to an already overweight position in Japanese stocks, with analysts now predicting the asset management giant’s exposure to country could have hit an historic high.

“We see the relatively benign domestic growth backdrop, rising dividends and buybacks and supportive monetary and fiscal policies as reasons to add to our overweight and remain invested through a period of heightened uncertainty,” said BlackRock Japan’s Chief Investment Officer, Tad Fukushima.

“The shock from higher commodity prices – from oil to food grains to industrial metals – in the aftermath of Russia’s invasion of Ukraine is likely more important. We believe the shock will weigh on growth and stoke higher inflation globally.

“Yet we see this impact to be felt most starkly in the euro area, and less so in other developed regions such as the U.S. or Japan. More broadly, strong underlying growth momentum – driven by the powerful post-Covid restart – has provided something of a growth cushion for the global economy going into the conflict.”

Fukushima noted robust results from Japanese stocks have been posted for the December quarter.

“Aggregate revenue for TOPIX companies grew 5.7% and operating profits rose 24.7%, according to data from the Ministry of Finance’s Financial Statements Statistics of Corporations.

“The manufacturing sector saw earnings rise 22.1%, suggesting companies were able to absorb higher energy costs. Importantly, Japanese companies’ operating leverage – a measure of how efficient companies are at turning sales into profits – is running at a 25-year high, according to Refinitiv data.

“This suggests that even with low-to-mid single digit revenue growth expected in the coming quarter, companies can absorb higher costs and potentially generate profits that could surprise on the upside.”

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