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Both the MSCI Japan Index, which has a similar composition to the Topix, and the Nikkei 225 hit 30-year highs in mid-February. Strategists at Capital Economics think that the recent outperformance of the MSCI Japan Index relative to the MSCI USA Index will continue as the world slowly gets back to normal.

Key quotes

“Our forecast is that major countries will have made enough progress in vaccine rollout by mid-2021 to allow their economies to reopen, accommodating further reflation and rotation in the stock market. And given the Japan Index’s higher concentration of cyclical sectors and greater exposure to fluctuations in the global economy, we think that this will benefit it by more than the USA Index.”

“Our forecast that the yen will appreciate to 100 against the US dollar from 108 would boost the relative performance of Japanese equities in USD terms, although it could weigh on the relative competitiveness of Japan’s exporters.”

“The upshot is that between now and the end of 2022 we forecast bigger gains in MSCI’s Japan Index in local currency (~23%) and USD (~30%) terms than in its USA Index (~19%).”