In the 90s of the 20th century, Japan was in a period of low interest rates, and its stock market experienced a downturn from 1989 to 2003, of which 1989-1992 was a period of rapid decline and 1992-2003 was a period of shock decline. During this time, large-cap and value stocks have performed relatively well, and the value for money of high-dividend strategies has also been highlighted. The performance of different industries in different periods is also different, among which the performance of pharmaceutical, precision instruments, transportation equipment and other industries has been relatively stable.

Excellent industries have the following three characteristics: First, strong external demand, and continuous improvement of overseas performance of enterprises, especially in pharmaceutical, electrical machinery and other industries. Second, domestic demand is stable, and although the overall consumption growth rate has slowed down, the fields of medical care, housing, transportation, and food still maintain positive growth, supporting the performance of the industry. Third, policy support, the government deregulation to promote competition, significantly increase infrastructure spending, and provide support for the development of the retail and construction industries.

The logic of the science and technology track: first, to enhance the global competitiveness of the industry and go overseas to find increments, such as Shin-Etsu Chemical in the field of materials science; the second is to intensively cultivate and subdivide the track to create invisible champions, such as Sumuxi, which specializes in pneumatic components; the third is to adapt to new needs and specialize in its domestic blue ocean track, such as Fanuc, a leading industrial automation company; Fourth, policy protection and monopoly of the domestic market, such as Sony and Panasonic in the communications industry.

Consumption track logic: On the whole, Japan's high-quality consumer stocks in the 90s mainly seized the opportunity of stock game and new structural demand. In the 90s, Japan experienced the bursting of asset bubbles, the growth center of private consumption shifted downward, and the willingness to consume decreased. However, even against the backdrop of weaker aggregate consumption, some consumer stocks have achieved growth by seizing structural opportunities. The growth of these consumer stocks is mainly due to the support of external demand, extreme cost performance, new demand brought about by new consumption habits, and the demand space opened up by the adjustment of external factors.

Japan experience

|Stock market recovery in Japan's low interest rate environment

In the 90s, the Japan stock market experienced a 14-year downturn. In the 1980s, Japan's loose monetary policy caused a flood of money into the stock market, sending stock prices soaring. At the end of 1989, the high-interest rate policy punctured the bubble, the Japan stock market crashed, and the policy rate was lowered, and the Japan stock market experienced a downturn for more than a decade in a low-interest rate environment. After March 2003, as Japan's economy picked up, the Japan stock market also came out of a long-term downturn.

The period of low interest rates in Japan can be divided into two phases depending on the degree of stock price fluctuations. One was from the end of 1989 to July 1992, a period of rapid decline, during which the Topix Index fell by 57.7%, with an annualized decline of 28.3%. The second phase was from July 1992 to March 2003, a period of shock and decline, during which the Japan stock market experienced three small bull and bear cycles, but the overall trend was downward, with the Topix Index falling 35.4% and an annualized decline of 4.0% during this decade.

|Market investment style in Japan's low interest rate environment

From a market style perspective, large-cap and small-cap stocks rotated, with value stocks performing relatively well.

Compared with the MSCI Japan large-cap and small-cap indexes, the large-cap style in 1995-1998 was clearly superior, perhaps because large companies were more resilient in the early stages of the bubble burst and the economic downturn. At the end of the 90s, the market began to shift to small-cap dominance, mainly due to the start of the Internet revolution, and new listed companies were constantly emerging.

Compared with the MSCI Japan Growth Index and the Value Index, in the low interest rate environment, the value style has long been dominant, and only during the Internet stock bubble accumulation period from 1997 to 2000, the growth performance outperformed the value. The price-performance ratio of the corresponding high-dividend strategy is highlighted.

|Industry Selection in Japan's Low Interest Rate Environment (1989Q4-1992Q3)

From the perspective of industry, there are differences in the dominant industries in different periods. During the period of rapid decline, the pro-cyclical sectors with weak correlation with real estate performed relatively well. During this period, all sectors declined, with annualized declines ranging from 18%-38%.

Since Japan experienced the bursting of the real estate bubble at the same time in the early 90s, real estate-related real estate, finance, steel and other industries were seriously damaged, and the market performance was poor. Relatively speaking, the better-performing industries include pharmaceutical, food, textile and clothing and other essential consumption, metal products, construction, oil and coal and other pro-cyclical industries with little correlation with real estate, mainly because they have certain defensive attributes and have less impact on fundamentals.

|Industry Selection in Japan's Low Interest Rate Environment (1992Q3-2003Q1)

During the volatile period, growth technology stocks performed better. Among them, the annualized increase of precision instruments, medicine and transportation equipment was more than 3%, and the annualized increase of the electrical industry was 0.6%, and these four industries still maintained growth during the market downturn. The worst performing industry is banks, mainly due to the outbreak of the financial crisis in Japan in 1997, which led to a large number of bank failures and restructurings, which hit the industry hard.

|Summary of the characteristics of the dominant industry - strong external demand

Japan's exports remained strong in the 90s, and a large number of overseas expansion, and the proportion of overseas revenue of some companies is increasing, providing strong support for corporate performance. From 1989 to 2003, the annualized real growth rate of Japan's export value reached 4.1%, higher than the annualized GDP growth rate of 1.1%, of which 5.6% during the rapid decline period (1989-1992) and 3.7% during the shock decline period (1992-2003), both higher than the GDP growth rate, which reflected that Japan's exports were still relatively strong at that time and were the main contributor to the economy.

Therefore, the market performance of industries with better export performance will be relatively better. Analyzing the annualized growth rate of Japan's main product exports from 1989 to 2003, it can be found that products with higher export growth rates highly overlap with the pharmaceutical, electrical machinery, chemical and other industries with the best market performance.

|Summary of the characteristics of the dominant industry - domestic demand is stable

In the 90s, the growth rate of Japan's household consumption shifted downward and the consumption tendency weakened. Although the total demand is declining, there are still structural consumption hotspots. According to the Annual Report of the Household Income and Expenditure Survey of the Statistics Bureau of the Ministry of Internal Affairs and Communications of Japan, it can be found that among the major categories of consumption, health care, housing, transportation and communications, public utilities, and culture and entertainment still maintained positive growth.

|Summary of the characteristics of the dominant industry - policy support

In the early 90s, in order to promote competition, the Japan government relaxed the regulation of the "Large Store Law", and financially supported the intensive and modern stores of retail enterprises and the revitalization of commercial streets, which made new retail formats such as convenience stores and 100-yen stores develop rapidly, and the market performance of the retail industry was also relatively good during this period.

另一个受政策支持的行业是建筑业，1991年日本经济泡沫破裂之后，日本政府开始采取大幅加强公共财政支出的方式推动基建建设以托底经济。1995年东日本大地震后，灾后重建也带来了大量建筑需求。这使得建筑行业无论在快速下跌期还是震荡下跌期都跑赢大盘。

|Stock performance: the stock market fell rapidly (1989Q4-1992Q3)