Negative quarter in Japan, China accompanied by signs of optimism

Yen rises post-Brexit, while China’s economy takes steps to become consumer-driven

Jason_Mark_sm_150dpi_RGBMarkets were down in Japan and China in the second quarter. While it appears Japan will continue to show weakness in the short term, there were several bright spots in China that give us cause for optimism.

Yen strengthens post-Brexit

The Invesco International and Global Growth team continues to be strongly underweight Japan. During the quarter, the Nikkei 225 Index was down over 7% when measured by the yen. However, if we consider a US dollar return, the Nikkei was actually up just over 1%.1

So why did the yen strengthen over 8% in the quarter?

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Why we believe China A-shares may be included in the MSCI Emerging Markets Index in the coming years

We outline the importance of the Chinese economy to global markets and emerging markets investing

Mike_ShiaoGlobal index provider Morgan Stanley Capital International (MSCI) recently said it would not add China’s local currency shares (Chinese A-shares) to its benchmark emerging markets (EM) index due to concerns about transparency in Chinese markets and capital controls of regulators.

Given current market sentiment, it is perhaps not surprising to us that MSCI erred on the side of caution. However, we believe a small percentage of China A-share inclusion, such as 5%, is highly possible in the next

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China and Japan: Valuations are standing in the way of opportunity

Growth remains elusive, and high-quality companies still look expensive

Jason_Mark_sm_150dpi_RGBWhile the first quarter was negative for Chinese equities, the Invesco International and Global Growth team is cautiously optimistic on China in the near term given the government’s stimulus measures, and even more optimistic in the longer term as China transitions from an export-led economy to a consumer- and services-driven economy. In Japan, however, we see that government stimulus has not been effective, and growth remains elusive.

China: Valuations look too high in most sectors

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