Japan Reforms Boost Markets as China Housing Steps Disappoint Julius Baer
Julius Baer's daily analysis highlights diverging Asian markets: corporate reforms in Japan drive stock records toward a Nikkei target of 75,000, while China's housing measures disappoint investors.
Asian markets continue to navigate an uneven economic landscape as corporate reforms in Japan bolster stock markets and encourage companies to focus on long-term value creation, while in China, government measures in the housing market continue to fall short of investors' expectations. This is according to the daily analysis from Julius Baer.
According to Luis Chua, equity research analyst for Asia at Julius Baer, corporate reform in Japan has shifted direction recently. After years where record dividend payments and share buybacks took center stage, the focus is now shifting to sustainable value creation through growth investments, more effective shareholder engagement, and business restructuring.
Corporate reforms have been one of the central themes in the Japanese stock market in 2026. Since the Tokyo Stock Exchange (TSE) asked listed companies in 2023 to "take steps to implement management conscious of the cost of capital and stock price," shareholder returns have continued to reach new highs.
Total dividends paid by companies comprising the TOPIX index are projected to grow at an average annual rate of 13% between fiscal year 2024 and fiscal year 2026E. In the current fiscal year, dividends are expected to reach JPY 21.7 billion, nearly double the JPY 11.9 billion distributed five years ago. Concurrently, the volume of share buybacks since the beginning of the year reached JPY 20.3 trillion through August 2026, compared to JPY 18.1 trillion in all of 2025.
Japanese Reforms Gain Momentum
Julius Baer points to three developments since July that they say reinforce the assessment that corporate reforms will continue to be a structural, multi-year driver for Japanese equities. On September 18, the Tokyo District Court granted a temporary injunction against the implementation of a poison pill defense mechanism involving the issuance of diluting warrants against a specific shareholder, even though the measure had been approved by shareholders in June.
The case has not yet been finally decided, but Julius Baer estimates that boards of directors of listed companies will henceforth pay much closer attention to constructive shareholder engagement. Ahead of the annual general meetings in June, institutional investors submitted 139 proposals across 51 companies—a record compared to just 12 in 2018.
On July 30, the Ministry of Economy, Trade and Industry (METI) published Q&A guidelines regarding corporate takeover guidelines. Among other things, the clarifications deal with what is considered a "bona fide proposal" and establish that whether an acquisition is desirable "should be determined based on whether it will preserve or enhance corporate value and the common interests of shareholders." Julius Baer estimates that boards now have some leeway to favor a proposal that enhances corporate value, but at the same time, they are required to justify their decision.
The Corporate Governance Code was also updated on July 21 by the Financial Services Agency (FSA), for the first time since 2021. The update focuses on the optimal allocation of corporate resources and the promotion of growth-oriented investments. Boards are required to build a "growth path" and explain their investments in capital expenditures, research and development, human capital, and intangible assets, as well as continuously review resource allocation and the use of cash, deposits, and physical assets.
Julius Baer notes that stock market volatility may persist in the short term against the backdrop of macroeconomic uncertainty, but maintains an overweight stance on Japan. The investment house points out that robust earnings growth, record levels of shareholder returns, improved return on equity, and structural reforms support a target of 75,000 points for the Nikkei 225 index.
China's Market Struggles for Momentum
Conversely, the picture in China is less encouraging from a market perspective. Richard Tang, head of equity research for Asia at Julius Baer, assesses that Chinese policy continues to be gradual and targeted, and that recent housing measures do not provide a response of the magnitude expected by investors. According to him, Chinese market sentiment is likely to remain weak until stronger catalysts appear.
The People's Bank of China (PBoC) announced on Tuesday that it would reduce the interest rate on Pledged Supplementary Lending (PSL) facilities by 25 basis points and expand re-lending facilities. At the same time, financial regulators launched a mortgage interest rate subsidy program. The steps were largely expected, but the actual scale of the subsidy likely disappointed the market. The program is limited to first-time homes with an area of less than 120 square meters, with a nominal value of less than CNY 1.5 million, and a subsidy cap of CNY 10,000 per year per borrower.
Julius Baer estimates that only 20%-25% of housing transactions will be eligible for the subsidy, with most of them located in lower-tier cities. Therefore, the investment house assesses that the impact of the policy on investment will be marginal and insufficient to offset the pressures stemming from policies regarding completed home sales.
As far as the Chinese stock market is concerned, Julius Baer believes that the lack of a significant surprise in policy measures could prolong the weakness in investor sentiment. Accordingly, a broader rally towards the end of the year now seems less likely. The investment house continues to focus on generating alpha rather than beta, and within the Chinese market, it focuses on AI hardware stocks and dividend stocks.
