UBS: It is too early to determine whether Japan's stock market has bottomed out. Investors should pay attention to specific sectors such as finance and real estate.

UBS Global Wealth Management's Chief Investment Office released a new report highlighting the reasons for the Japanese stock market's second consecutive decline yesterday (August 5), which were concerns over the US economic recession, the strengthening of the yen and leverage hedge fund positions.

The bank expects the Japanese stock market to have entered a bear market and believes it is too early to conclude that the overall market bottom has been reached. Despite this, taking into account positive factors such as inflation, wage growth and corporate governance reform, the bank suggests that long-term investors should not consider exiting the Japanese stock market at this stage.

UBS believes that short-term market volatility remains due to the market's view that the US dollar/yen exchange rate has not stabilized. Although many Japanese companies expect the average exchange rate to be around 145 yen, the bank believes that the exchange rate could fluctuate significantly and trigger more widespread corporate earnings revisions.

The bank is more positive on specific sectors such as financials and real estate, where the risk/reward has improved after a near 25% correction, and real estate remains attractive as a defensive sector due to rising inflation and potential stock buybacks. Investors are also advised to seek quality growth stocks, exploit AI opportunities and diversify through alternative assets.