Value in Japan? Where investors can still find mispriced opportunities

TOKYO, Jul 18 (portfolio-adviser.com) - Since Warren Buffett got involved, the world has gone crazy for Japan. The Nikkei is up 23.4% for the year to date (to 10 July 2023).

That puts it 8.8%, 11.2% and 25.8% ahead of the S&P 500, Eurostoxx 50 and FTSE 100 respectively. Investors might well conclude that the easy gains have been made and look elsewhere.

The reasons for the success of the Japanese market for the year to date have been well-documented. Japan was later to emerge from Covid, and is now experiencing the economic upswing of reopening. It has finally laid deflation to rest, with rising prices and wages now a feature across the economy. However, more important have been the structural reforms that are finally galvanising Japan’s stolid corporate sector.

The Tokyo Stock Exchange has been promoting the soft requirement of a price-to-book ratio above one, alongside a raft of other measures to encourage better capital efficiency among Japanese corporates. With around half the Japanese index trading below book value, the move could be important in encouraging companies to unwind their cash piles and improve their return on equity. ...continue reading