Japan offers bright spot for private equity investors during slump (2024)

FAQs

Is Japan's PE market a rare bright spot in 2024? ›

Few overseas investors would admit to feeling overly enthusiastic about Asia-Pacific private equity markets this year. Japan, however, is proving to be an exception. At PEI Group's NEXUS event last week, Japan was repeatedly singled out as one of the most exciting places in which to invest in 2024.

Private equity can be a very well-performing asset class during a recession. By understanding the risks and opportunities and having the right processes and technologies in place, your firm can punch above its weight and deliver high-quality returns to its LPs.

Private equity firms thoroughly analyze the investment opportunity and research the business to understand the company's market position, industry trends, financials, etc. Factors that help them determine if a company is a good investment target or not include: Operation in a non-cyclical industry.

Despite the record highs, analysts generally believe that Japanese stocks are currently not overvalued. The Tokyo market's price-to-earnings ratio stands at around 16, in contrast to 23 for both the S&P 500 and the Sensex. For the year 2023, Nikkei 225 witnessed a return exceeding 28%.

What is the best month to go to Japan? The best time to visit Japan is during spring (March to May) or autumn (September to November), when the scenery comes alive with cherry blossoms and red leaves. However, it can get quite crowded at this time too!

Over the past quarter of a century, private-equity firms have churned out distributions worth around 25% of fund values each year. But according to Raymond James, an investment bank, distributions in 2022 plunged to just 14.6%. They fell even further in 2023 to just 11.2%, their lowest since 2009.

Focusing on the major economic downturn of the early 2000s, the 2007 – 09 global financial crisis, and the 2020 COVID-related market events, we found that private equity historically experienced a less significant drawdown, and a quicker recovery, than public equities in all three cases.

What countries are best for private equity? ›

At the very top of the charts sit the United States, the United Kingdom, Canada, Singapore and Japan.

Develop a clear growth strategy:

A clear growth strategy is essential for attracting private equity. Your strategy should outline your plan for scaling up your business and achieving your growth objectives. It should include detailed financial projections, market research, and an analysis of your competition.

Clear Market Opportunity:

A business with a clear market opportunity and a solid strategy for growth is attractive to investors. Private equity firms want to see that a company is operating in a stable market with significant growth potential. There must be a clear strategy for capturing a meaningful market share.

Looking ahead in 2024, we expect individual investors to increase cash flow via the new NISA, listed companies to respond to the TSE's request to increase corporate value, and foreign investors to maintain their interest Japanese markets.

We believe this is likely to sustain the Japanese equity rally going forward, and we turn more positive on the market, increasing our base case TOPIX outlook to 2,700-2,750 (from 2,420-2,480). Over the next 12 months, we expect earnings to grow 8-9%, driven by semis, consumer discretionary and financials.

Surging Japan remains attractive investment target for institutional investors. In U.S. dollar terms, Japan's Nikkei 225 index was up about 7.6% year-to-date through April 15, following a 21.3% jump in calendar 2023.

Japan's service sector remains main engine of growth

Notably, foreign demand improved for the first time since August last year, indicating a broad-based rise in demand for services both domestically and externally. All these factors continue to bode well for services activity to sustain growth in the coming months.