(Bloomberg) — Natixis Investment Managers has raised its allocation to Japanese equities, betting the nation’s economic growth momentum will endure as inflationary pressures push government bond yields higher, its strategists told Bloomberg in a recent interview.
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Japan’s monetary and fiscal policies are more supportive of its economy and stock market compared with those in the US, where Natixis has pared exposure, said Mabrouk Chetouane and Romain Aumond.
“We think that the forces that are driving the stock market are stronger in Japan than in the US,” said Mabrouk Chetouane, head of global market strategy. “There is no reason to maintain or to have any positive exposure to the bond market in Japan, Europe or the US, it’s the same story all over. But we are convinced that the best risk reward is on the equity side.”
The asset manager, which oversees about $1.5 trillion globally, changed its weighting on Monday, a day before Japan’s 10-year government bond yield touched 3% for the first time this century. The firm previously viewed the level as a potential pain threshold for stocks.
Chetouane said higher inflation translates into a boost for corporate revenues and earnings and “this is exactly what the market is pricing.”
The firm has maintained “underexposure” to bond markets globally as the performance in longer-dated maturities has been negative, the strategists said. In the US, the 30-year yield has climbed to levels seen just before Treasury Secretary Scott Bessent shocked markets last month by expanding a buyback program in an effort to halt the rise. The UK 30-year yield reached the highest since 1998, while the Australian 10-year yield surged to a 15-year high on Tuesday.
“The recent rise in real interest rates is basically driven by the growth momentum,” said Aumond, quantitative strategist, referring to Japan. “So this is a super signal for us to go overexposed to Japanese equities,” and Bank of Japan normalization of monetary policy is a positive, he said.
BOJ Governor Kazuo Ueda hinted that a rate hike is likely when the board convenes for a meeting later this month while overnight index swaps are now fully pricing in a rate hike at that meeting.