The rally over the month was led by lagging cyclical sectors, which have been underperforming the market since COVID hit. With the vaccine seen as a magical solution to the return to normal, relevant sectors surged given that production and consumption is expected to be on the rise. The vaccines should also provide a better case for holding the delayed Olympic Games in 2021, which could provide the much-needed boost to the struggling economy.

However, we remain sceptical that the economy will recover to the level that justifies the market rally, as the issues contributing to the weak fundamentals have not dissipated. Moreover, questions remain over the economic benefits holding the Olympic Games, as travel restrictions are not likely to be fully lifted by mid-2021. The vaccines production timeline will likely only meet the world’s population by 2022. With the valuation levels elevated, the upside is relatively limited in the short term, we would still advise against overweighting Japanese equities considering the comparatively larger downside.