Global Equity Pulse: Japan’s compelling case—an updated view

Summary

The investment case for Japanese equities remains attractive in 2026, as economic normalization and sustained inflation continue to provide growth tailwinds. A broadening of corporate reforms is also underway, driving structural enhancements of shareholder returns.

At Templeton Global Investments (TGI), recent company meetings and visits reaffirmed our confidence in Japanese equities by giving us further evidence of corporate Japan’s commitment to growth execution and capital allocation discipline, all to the potential benefit of investors.

Investment outlook

In the United States, the nomination of Kevin Warsh as the next Federal Reserve (Fed) chair should cause little concern in the market, given his rich experience. Focusing on fundamentals and valuations, we believe cyclicals and consumer discretionary stocks are likely to benefit most from tailwinds such as the expectation of unusually strong tax refunds and improved liquidity conditions. In Asia Pacific (APAC), earnings growth acceleration underpins a constructive regional outlook. Taiwan and South Korea are expected to lead in growth, benefiting from robust artificial intelligence (AI) infrastructure capex and strength in memory chip pricing. South Korea’s corporate reform potential also looks compelling. Solid earnings growth and attractive dividend yields are similarly expected in Europe, supported by moderate economic expansion and resilient corporate margins. Utilities and industrial companies stand to benefit from investments in energy infrastructure, electrification, defense and reshoring initiatives.

In North America, on January 30, US President Trump nominated Kevin Warsh to succeed Jerome Powell as chair of the Board of Governors of the Federal Reserve. After being confirmed by the US Senate, Warsh would become chair when Powell’s term ends in May. In our view, financial markets should welcome Warsh’s appointment. Warsh has experience, having served as a governor of the Federal Reserve Board from 2006-2011. He was present for all major decisions during the global financial crisis and therefore understands well both the everyday and crisis-management tools and role of the Fed.   

In Asia Pacific, markets had a mixed showing in January, enduring renewed concerns of geopolitical uncertainties and US tariff threats. We nonetheless maintain our constructive view on the regional outlook. APAC companies have navigated the worst of global trade headwinds and, barring surprise macroeconomic shocks, should see faster growth in 2026. Supportive monetary or fiscal policies across a range of key APAC markets—such as India, Japan and potentially China—may provide a conducive backdrop as well.     

In Europe, in many important respects, we emerge in 2026 with a manifestly different Europe than in recent years, one molded by years of financial turmoil, Brexit, energy crises, war in Ukraine and now, difficult trading relations with the United States. We believe this new Europe has the potential to undo more than a decade of global equity market underperformance, with 2025 beginning to reveal early signs of that shift. The debate triggered by former European Bank Central Bank President Mario Draghi’s report on European competitiveness highlighted a growing recognition that structural reform, capital investment and improved policy coordination are no longer optional. That acknowledgement, alongside a more pragmatic fiscal stance in Germany and a clearer commitment to collective defense spending, points to a region with a more durable growth outlook than investors have been accustomed to.

Market review: January 2026

Global equity markets advanced in January, though returns were uneven across regions as geopolitical developments, sector rotation and policy-related uncertainty shaped investor positioning. The MSCI World Index rose on the back of strong gains in Europe and continued resilience in parts of Asia, while US equities lagged. Risk appetite was robust early in the month. However, momentum moderated later in January as markets contended with heightened geopolitical tensions, growing scrutiny of US monetary policy independence and the early stages of fourth-quarter earnings season.

Sector dispersion was a defining feature of the month. Defense, industrials and selected technology segments outperformed, reflecting elevated geopolitical risk and continued investment in strategic and security-related themes, while consumer-oriented sectors and parts of global growth underperformed. Commodities and precious metals benefited intermittently from geopolitical uncertainty and concerns around resource security, contributing to strength in materials-heavy markets.