Although headwinds remain, Japan equities continued to ride on the positive market sentiment over a recovery in 2021, and ended the year with yet another green month. The Nikkei 225 Index was 3.82% higher (4.87% in USD terms), while the TOPIX Index also rose 2.84% (3.87% in USD terms).
The never-ending COVID epidemic has once again reared its ugly head in the country, with infection figures hitting fresh record highs. The government have declared the state of emergency for the Tokyo area, and is considering expanding the coverage. The state of emergency this time around has been more restrictive, as there has been limitations on holding events and early closures of restaurants and bars, which would likely negatively impact the economy that has yet to fully recover.
This brings us to the second point, where the largest stimulus in form of Olympics Games is potentially in jeopardy. With the epidemic situation remaining relatively severe, recent surveys showed a majority of respondents favouring a further delay or cancellation altogether, contrary to the Japanese government’s determination of hosting the Games ‘at any cost’. We remain sceptical of a complete vaccination complete by 2021 Q2, which would limit the actual economic benefits generated, the prolonged limitations on travel would create further pressure on baseline scenario in Japan. Henceforth, our stance remains opposed to overweighting Japanese equities in the New Year.