Why Jesper Koll Is Bullish on Japanese Stocks Despite Sell-Off

On a volatile Monday that saw Japan’s stock market nose-dive by 12.4%, its sharpest daily drop since the notorious “Black Monday” in 1987, Monex Group’s Jesper Koll is ready to take what some may consider a daring step. Despite significant market turbulence, Koll’s conviction to “start buying Japan” is rooted in what he deems as solid fundamentals.

Japan’s Financial Landscape: A Tale of Turbulence and Opportunity

The recent drastic decline of the Nikkei 225 index could easily send shivers down the spines of even the hardest of market enthusiasts. On August 5, 2024, this leading Japanese stock index fell by 12.4%, marking a disruptive event reminiscent of “Black Monday” in 1987. Global markets have pulled back, influencing the Japanese financial landscape significantly.

However, not everyone views this as a cause for panic. Jesper Koll, head of Japan at Monex Group, has a different perspective. According to Koll, despite the unsettling market dip, the underlying fundamentals of Japan remain robust. In his interview on CNBC’s “Squawk Box Europe,” he stressed that he is “actually prepared to dip my toe into the water and start buying Japan.” Koll’s confidence stems from multiple factors contributing to a positive economic outlook.

Improved Corporate Governance and Capital Stewardship

Koll believes that recent improvements in corporate governance and capital stewardship add weight to his decision. Japanese companies have been actively involved in driving investment and increasing real estate prices. Although there might be short-term earnings revisions due to fluctuations in the Japanese yen, these longer-term enhancements in management practices build a positive outlook for the market.

Revised Earnings and Real Estate Boon

One of the more pressing concerns is the movement of the Japanese yen, which recently hit a 38-year low against the U.S. dollar in July. While a stronger yen typically puts more pressure on stock markets, the Japanese government’s attention to this issue has been evident through recent interventions. In response, the Bank of Japan raised the benchmark interest rate to its highest level since 2008, and plans to trim its purchase of Japanese government bonds.

Despite these movements possibly leading to downward earnings revisions, the real estate market tells a different story. Increased prices in the real estate sector are viewed as indicators of economic health and potential future financial stability.

Market Volatility and Investor Reactions

Initially, the sharp market declines deterred many investors. Kelvin Tay, regional chief investment officer at UBS Global Wealth Management, warned against investing in the Japanese market at this juncture, likening it to catching “a falling knife.” Such a metaphor vividly illustrates the perceived risk of entering a declining market.

Japan’s Resilience: Unemployment and Domestic Investments

Resilient Employment Rates

Koll’s optimism isn’t unfounded; Japan continues to exhibit economic resilience, notably in its consistently low unemployment rates. In stark contrast to the United States, where unemployment is a frequent cause for concern, Japan’s labor market remains robust. Koll highlighted this, stating, “the unemployment rate in Japan will continue to fall unlike in the United States.”

Growth in Domestic Business Investments

Another compelling factor is the ongoing growth in domestic business investment expenditure. Such trends indicate an active internal market and potential long-term economic stability. This local expenditure, supported by low unemployment, makes a strong case for Japan’s resilience even amid global economic uncertainties.

Government and Central Bank Actions

Amid the financial turmoil, Japanese Finance Minister Shunichi Suzuki emphasized the government’s close cooperation with the central bank, illustrating their proactive stance in monitoring financial markets with “grave concern.” The Ministry of Finance’s recent interventions to shore up the yen are part of a greater strategy to stabilize the currency and, by extension, the broader market.

Authorities have shown their willingness to step in when necessary, reinforcing the notion that Japan’s financial oversight is both vigilant and responsive. For more on this, you might find this Bloomberg report and Reuters piece insightful.

Looking Ahead: Is Japan Recession Proof?

Despite the recent market downturn, long-term indicators such as domestic business investments and falling unemployment rates support Koll’s view of Japan’s economic resilience. He confidently notes, “Japan is recession-proof and sooner or later that’s going to start to be reflected positively in capital markets here in Tokyo.”

For investors looking at the bigger picture, the Japanese market presents unique opportunities. While short-term movements can be nerve-wracking, fundamental strengths in corporate governance, low unemployment, and real estate growth suggest potential for longer-term gains.

Thus, while the current situation might appear daunting—characterized by sharp declines and market apprehension—the underlying economic fundamentals provide a hopeful outlook for Japan’s financial future. As such, Koll’s willingness to invest in Japan, even as the market experiences a downturn, serves as a bold testament to his confidence in the country’s economic resilience.

For an in-depth analysis of Japan’s market interventions and economic policies, you can explore CNBC’s comprehensive report.