Japan Is Set for ‘Imminent Takeoff’ in 2022: AXA

  • Axa Investment Managers’ $981 billion in assets make it one of Europe’s biggest investors.
  • The fund firm has picked out Japan as a potential strong performer in 2022.
  • Axa also said it expects global supply chain and inflationary pressures to ease.

Next year is likely to be one of economic recovery, even though inflation has picked up and the threat from the coronavirus is far from over. Axa Investment Managers, one of the world’s largest asset managers $981 billion under its watch, is tipping Japan as one market that looks set for a strong bounce-back in 2022.

While the US economy and equities market has seen a meteoric resurgence from the pandemic-triggered crash of early 2020, stocks in the world’s third biggest economy have lagged behind.

In a contribution to Axa’s 2022 outlook research note, Hugo Le Damany, an economist focused on core investments, pointed out that Japan has been held back by a slow vaccination roll-out and a longer period of restrictions than the US and much of Europe.

The Nikkei has returned a paltry 4.78% over the past year, a figure trounced by the S&P 500’s remarkable 24.83%. As a result, price-to-earnings ratio of the stocks in the Japanese benchmark index is just 15.98, compared with almost 25 for the S&P 500, according to Bloomberg data.

This could be about to change though, with the macroeconomic backdrop set to improve markedly. An “imminent take-off” is on the cards, according to Le Damany.

“Approximately 80% of the population is now vaccinated and the government declared an end to the state of emergency in late September. Some restrictions persist, but these should be removed quickly.” 

“In other words, we see more tailwinds than headwinds in the coming months and these should start to support growth from the fourth quarter with a strong mechanical catch-up.” 

AXA expects Japan to actually tie with the US on economic growth next year, hitting an annual rate of 3.5%. This could be considered a bold prediction, given the long running struggle Japan has faced in generating growth since well before the pandemic.

Le Damany said this recovery will continue as the new year gets underway, because a rebound in consumer demand is far from complete, and is backed by a large amount of personal saving in the population, with levels hitting 3.7% of GDP. 

He also noted the Japanese government has taken some big fiscal steps toward stimulating the economy that could bear fruit in 2022. These include cash handouts to people under the age of 18 of $890, shopping vouchers for ‘My Number’ digital ID cardholders and subsidies to small and medium-sized businesses.

The degree to which an improved economic picture will be reflected in the Japanese stock market is uncertain, but it is clear that better economic conditions raise the chances of higher equities returns next year.

Japan’s leading index, the Nikkei 225 has been left in the dust by all the other benchmark indices across the G7, but the Asian nation looks set to make up at least some ground. 

Nikkei vs S&P

Google Finance chart of the Nikkei 225 versus the S&P 500


AXA also struck a positive tone on the global economy in its 2022 outlook note, as it expects inflation to ease in the new year.

Chief economist and head of research Gilles Moec said the fund manager believes pressure on global supply chains will gradually decline, contributing to a slowdown in inflation. 

An easing of inflation would give central banks cover to hold off on rate rises, which would risk stalling the pandemic recovery.

“This would allow central banks to maintain a prudent approach to the pace of policy normalization,” Moec noted. 

Turning specifically to the US, AXA expects a slowdown in the rate of growth seen in the early stages of the recovery, but is still pretty bullish.

“GDP growth should continue at a robust pace, though likely decelerate,” noted David Page, head of macro research. “We forecast growth of 5.5% in 2021, 3.5% in 2022 and 2.7% in 2023.”

Page added that the

Federal Reserve

does not look set to start a material tightening cycle until the end of 2022. He cautioned that any fresh doubts about managing longer-term inflation could bring on an earlier start to this.

The Bank of Japan, meanwhile, is largely expected to hold fire, keeping monetary policy ultra-accommodative, which should be a boon to the stock market. 

“We believe the Bank of Japan (BoJ) should maintain its accommodative monetary policy at least until
2024, while steadily tapering government bond and risk asset purchases. The bar is likely too high to taper faster,” Le Damany said.

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