The Nikkei 225 had a big day today, rising nearly 2% to an all-time high. It's a sign of an ongoing breakout after finally cracking the 1990 high earlier this year.
Blackrock Investment Institute says there is more to come, calling long Japanese equities one of its highest conviction equity ideas.
One area they are particularly interested in are Japanese healthcare stocks, and recently wrote:
Take demographics. Japan’s aging population and shrinking workforce has been well documented. It is the world’s oldest population, with a median age above 48 years compared to the global average of 30 years, according to 2022 United Nations World Population Prospects. The government expects Japan will have one elderly person for every working-age individual by 2060. Japan's shrinking labor force has contributed to economic stagnation - exacerbated by the bursting of the asset price bubble of the late 1980s.
Yet markets have been slow to price these structural shifts. Over the last three decades, the value of Japan’s healthcare stocks relative to the broader market have risen broadly in step with the growth of its retired population, as measured by the dependency ratio – evidence that structural shifts are not always priced by markets, even if they can be anticipated years in advance. See the chart below. With the dependency ratio expected to rise further, we think the healthcare sector can keep outperforming.
Warren Buffett has also made some large bets in Japanese trading houses.
A warning though, yen weakness has been a big part of the outperformance of Japanese equities. Should USD/JPY turn lower, Japanese stocks could come under pressure.
