The Japanese market remains in weaker form as global markets went sideways over the month of May, mainly driven by increasing risk factors arising from the surging inflation. The country is further affected by the ongoing pandemic, equities felt the effect of the sluggish economy, Nikkei 225 was only up by 0.16% (0.00% in US$ terms), while the TOPIX index gained 1.30% (1.14% in US$ terms).
Extending last month’s record, economic fundamentals in Japan remain weak, which was a product of the weaker growth potential, and depressed economy outlook due to the epidemic. The 2021 Q1 GDP went negative once again, and was worse than the expected figure, outlining the weak economy in the country. Other fundamental indicators, including industrial production, and retail sales, fell short of expectations, which further supports a weaker outlook on the Japanese economy.
The problems further compounded with the ongoing epidemic in the country, where cases remained at elevated levels. More crucially, the key to a full economy recovery, vaccination progress, have remained sluggish, which could possibly slowdown future economic growth. Henceforth, our view on the Japan equity market remains unchanged – the cyclical trade could benefit the market to a certain extent, but country’s soft fundamentals likely pose a larger risk, we would avoid overweighing the market.