Japan shares – new year, new highs

Insight: Japan’s Nikkei225 stock average surpassed its 1989 bubble-era peak early last week and kept right on going, crossing 40,000 on March 4. This latest milestone in what is now, more or less, a three-year rally comes against the background of an economy that continues to grow only modestly. 

Impact: Macro expansion, however, is only one factor, and not the most important. What has caught the imagination of investors, particularly foreign ones, are corporate governance reforms, from asset sales to share buybacks, which are leading to higher returns on equity, as well as strong corporate earnings and initiatives to encourage more retail investors back into the market. This is being fuelled by the weak yen and underpinned by the global tech rally. Add in the fact that valuations are still modest by international standards and many analysts believe this rally has legs. Of course, U.S. shares are at or close to record highs as well – but the S&P’s multiple is much closer to bubble territory than the Nikkei’s. 

2 trillion

The funding (in JPY – equivalent to USD 13.3 billion) earmarked by Japan to support the domestic semiconductor industry this fiscal year, the largest amount the country has ever devoted to the sector. Once a dominant force, Japan has fallen behind rivals in semiconductor manufacturing and is seeking to retake the throne as companies domestic and abroad look to make their supply chains more resilient. In fact, Japan’s semiconductor outlook has been one of the driving factors behind the Nikkei’s recent rally.

Insight: Asia’s governments are currently pouring a lot of money into pop culture and sporting events, with Singapore reportedly paying Taylor Swift USD 2.77 million for each of her six shows on the condition that the city would be the megastar’s exclusive tour destination in Southeast Asia. This sounds like a bargain, given the Hong Kong government spent almost the same amount on the Inter Miami game which resulted in the Messi PR fiasco earlier this year. Singapore may currently be riding high in the race to be Asia’s ‘World City’, but can Hong Kong ‘shake it off’ and re-emerge as ‘the 1’?

Impact: Attracting mega events has become a key strategy not just to boost tourism but, more importantly, to build a city’s reputation as a vibrant and investable destination. Hong Kong is having less success in securing big-ticket names, the most recent example being Coldplay, which suggests that its soft power allure has diminished. Messi’s ‘no show’ – and the subsequent outcry – has added fuel to the fire. This is in stark contrast to Singapore, whose success in securing Swift’s concert tour pushed demand for local accommodation and flights up by almost 30%. The Minister of Tourism in nearby Indonesia even stated: “We need Swiftonomics.” Yet, such events can only be one small part of a long-term strategy to enhance global standing. The task is clear, but the question remains – is Hong Kong ‘ready for it’? 

Insight: China convened its annual ‘Two Sessions’ government meetings this week, bringing together officials to outline policy direction and economic objectives for the coming year. Amid weaking economic growth, a malaise in the property sector and persistent deflation, foreign investors were looking for clear signs of additional government support. Instead, they saw similar targets to 2023: a GDP target of around 5%; CPI of about 3%; a deficit target of 3%; an unemployment rate of about 5.5%.

Impact: Some foreign economists have questioned if Beijing has a grand plan to address the widespread challenges facing the world’s second-largest economy. China's leaders would argue otherwise, yet they are all too aware of the pressures. Presenting his work report, Premier Li Qiang conceded that “It is not easy for us to realize these targets.” For many multinationals, however, the size and scope of the China market still point to a long-term play, and the meeting did hint at some bright spots. The central government will issue RMB 1 trillion in special long-term bonds to support strategic initiatives. These include new energy cars, hydrogen power, new material, innovative drugs, commercial aviation. Officials also promised to curb industrial overcapacity, a measure likely to be welcomed in boardrooms and the corridors of power in the U.S. and Europe – if it is followed through. 

As we mark International Women’s Day on March 8, our sister newsletter, DEI Insights, explores how companies are fostering ‘Diversity Equity & Inclusion’ in Asia Pacific

Insight: Multinational companies operating in APAC face distinct challenges and opportunities in fostering diverse and inclusive workplaces due to the region's vast cultural, linguistic, and ethnic diversity. Adoption of ‘Diversity Equity & Inclusion’ (DEI) initiatives regionally has arguably been slower than elsewhere, although there is a growing interest on gender-related issues and increasing female leadership. This comes amid criticism about the slow pace of progress in sectors like marketing, media, and financial services. So, how should companies respond?

Impact: Above all, they cannot adopt a 'one-size-fits-all' approach to DEI in the region and must consider varying levels of corporate ambition, regulatory enforcement, and cultural dynamics. Strategies should be tailored to the regional context, involve careful consultation with local stakeholders, and be mindful of unconscious bias. We are seeing increased momentum in some areas. According to AON’s seventh global HR pulse survey, 71% of firms in APAC are choosing to involve their employees in designing DEI initiatives. And in some industries, such as technology, significant opportunities for women now exist. But it is clear multinationals may have to redouble efforts to ensure progress is felt by everyone.

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