Bears beware—one of the most bearish strategists out there has changed his tune and singled out a potentially bright spot in the stock market.
Albert Edwards, Société Générale’s permabear, usually spooks investors with his downbeat views at his bank’s annual strategy conference in London, but this year shocked attendees by squeezing a rare optimistic take on Japanese equities.
“I’m gonna try and be quite bullish about something: Japan,” he said at the conference, also referred to as “Woodstock for bears”, earlier this week. “So there will be a slightly more upbeat part of my presentation for a change.”
That’s it. We’ve broken Edwards. https://t.co/725rpZrAiv
— Carl Quintanilla (@carlquintanilla) January 9, 2018
Edwards said the Japanese economy has a lot of positives at the moment, including strong household incomes, surging corporate profits and the prospect of a rapid pick up in consumption.
“It’s a cheap market, if you are looking to invest, that is the bright spot. You can see the Japanese corporates and the economy doing pretty well,” he said.
Japan’s Nikkei 225 NIK, -0.33% has jumped almost 15% over the last three month, reaching its highest level since November 1991 earlier this week. Even so, valuations for aren’t as stretched as in the U.S. The forward price-earnings ratio for the Nikkei stands just above 19, while it’s at 21 for the S&P 500 index SPX, +0.37%
Andrew Lapthorne, head of SocGen’s quantitative analysis team said sky-high valuations have been a reason investors have been scared of snapping up Japanese stocks, but that headwind has been dissipating.
“On valuations, Japan looks attractive relative to its global peer group, so one of our reasons we are interested in Japan it’s not just because it’s profitable but also because the valuation headwind has turned into a tailwind. So Japan is interesting,” he said.
And Société Générale isn’t alone in touting Japan as a solid stocks story. In the 2018 markets outlook, investment banks such as UBS and J.P. Morgan Chase & Co. also highlighted the Asian nation as a go-to place for investing.
However, there’d be no “Woodstock for bears” without at least a few depressing messages. At the London conference, Edwards shared some concerns over what could eventually upend the recent global stock market rally, pointing to Japan as one of the potentially triggers.
That’s because, even with his newfound optimism in Japanese shares, there is a risk inflation will rise faster than expected and prompt the Bank of Japan to halt its aggressive easing program, Edwards warned.