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In focus: Revisiting Japan and its investment case

The investment thesis surrounding corporate reforms and structural return on equity (ROE) improvements in Japan remains compelling to many foreign investors, even as they mull over increased macroeconomic and policy risks facing the market.

This was among the key takeaways Templeton Global Equity Group’s (TGEG’s) portfolio manager had following his recent week-long visit to Japan, where he attended the SMBC NIKKO Japan Series “Executive Conference Tokyo 2025,” as well as 15 company meetings.

Investment outlook

In North America, US President Donald Trump’s 25% tariffs on Canada and Mexico took effect on March 4, causing US stocks to plummet. The president also announced that he is imposing an additional 10% tariff on China on top of the 10% hike he recently instituted and that previously announced “reciprocal” tariffs would take effect in April.

In Asia, the whirlwind of US-related news has similarly dominated market headlines in Asia. With Trump slapping additional 10% tariffs on China while putting the 25% duties against Canada and Mexico into effect, a global trade war remains a tangible prospect.  

In Europe, we have been positive, for some time, about the prospects of Europe-based defense companies—the likely increase in defense spending across Europe could create considerable upside potential. Since 2021, we have anticipated a step up in defense spending which would take the industry from low-single-digit to mid-single-digit growth, with the potential for double-digit growth if NATO commitments are upheld.   

Market review: February 2025

Global equities collectively declined in February 2025 after starting the year on a strong note. As measured by MSCI indexes in US-dollar terms, developed market equities slightly underperformed a global index, while emerging market and frontier market equities outpaced it with positive results. In terms of investment style, global value stocks generated gains and substantially outperformed global growth stocks.

Amid investor concerns about US economic growth and Trump’s tariff plans, US stocks retreated, pulling developed market stocks and the broader global equity market lower. On the economic front, global manufacturing activity expanded in February for the second consecutive month, and flash reports for the same month showed that global services activity continued to grow in several regions.

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Investments in fast-growing industries like the technology sector (which historically has been volatile) could result in increased price fluctuation, especially over the short term, due to the rapid pace of product change and development and changes in government regulation of companies emphasizing scientific or technological advancement or regulatory approval for new drugs and medical instruments.

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