For the last eight years, GMO’s Asset Allocation team has held a differentiated view on Japanese equities. Long before Japan re‑entered the global investment narrative, we argued that the country was undergoing slow but durable structural changes aimed at improving corporate governance, growth, and capital efficiency. These reforms were never expected to deliver quick results. Instead, we expected them to compound quietly over time.

Deep value stocks remain our highest conviction long-only investment idea. Globally, they trade at abnormally wide discounts and offer attractive expected returns in an environment where many equities trade at elevated valuation levels.

In a world of rich valuations and heightened geopolitical uncertainties, we believe Japanese equities are well positioned to deliver attractive returns.

Enthusiasm for Japanese equities picked up in 2023 as evidenced by the 28% rally in the
TOPIX (local) index through November.

This quarterly is a piece written by my Asset Allocation co-head John Thorndike. In it, he explains the rationale behind our strong preference for non-U.S. stocks despite the stellar performance the U.S. stock market has delivered over the last decade. The research behind the piece is an example of the bread and butter of our historical asset allocation analysis.

In a new white paper from GMO’s Asset Allocation team -- "It's Always Darkest Before the Dawn" -- Ben Inker, Catherine LeGraw, John Pease and John Thorndike examine the three phases of bear markets against the backdrop of the current market environment.

Emerging market value stocks are the most attractive asset class for two reasons, explains GMO's John Thorndike.