Results for the full-year earnings season were solid. A key positive aspect was the fact that many companies announced an increase in shareholder returns by increasing dividends as well as share buybacks, in response to initiatives by the Tokyo Stock Exchange.
Stock prices for such companies with low valuations went up strongly, in addition to the strong rally in large-cap growth stocks.
With regard to the macroeconomic trend in Japan, Q1 GDP growth figures were positive with solid domestic demand being driven by Covid-reopening and inbound tourism.
Visitors to Japan continued to recover to 70 per cent of pre-Covid levels, while tourist spending is also back to pre-Covid levels.
Asia (ex Japan)
Asia (ex-Japan) equities recorded a negative performance in May, with sharp declines in Hong Kong and China offsetting share price gains in South Korea, Taiwan and India.
Hong Kong was the weakest index market in May, closely followed by China, as the investor optimism seen earlier in the year following the reopening of China’s economy after the Covid-19 crisis faded due to disappointing economic data and weakening demand.
In China, the economic recovery has been weaker than analysts had expected, with the latest factory activity reading coming in below the mark that separates growth from contraction.
Service sector activity, while still positive, expanded at the weakest pace in four months in May. Share prices also declined in Thailand, Singapore and Indonesia in May.
Taiwan was the best-performing index market, driven by gains in technology stocks as investors rushed to buy AI-related shares.
Investor enthusiasm for AI also boosted share prices in South Korea, which ended the month firmly in positive territory.
India stocks also achieved modest gains in May, as encouraging economic data boosted sentiment towards the country.
Emerging markets
Emerging market equities underperformed the MSCI World Index in May.
Within EM, South Africa was the weakest market, posting a double-digit loss in US dollars. Allegations that the country sold arms to Russia, the worsening electricity situation, and the rand’s slide to an all-time low against the US dollar weighed heavily on the market.
The Czech Republic came in close behind South Africa amid ongoing signs that consumption is under pressure.
China also underperformed significantly as the recovery showed signs of moderating.
Retail sales and industrial production contracted month on month in April, while year on year fixed asset investment was dragged down by real estate, and export activity slowed month-on-month in April.
Kuwait, UAE and Saudi Arabia underperformed amid a backdrop of weakening oil prices. Colombia, Peru and Chile lagged the index too.
Colombia was also impacted by rising political uncertainty and concerns about the country’s possible reclassification to frontier market status.
