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Monday, January 10, 2011

Japan for 2011?

The yen is no longer acting as a pervasive vice on profits and the Japanese corporate sector is about to enjoy a five percentage point cut in the top marginal rate to 35%. Meanwhile, the Japanese equity market has a lot of catching up to do in relation to its G7 counterparts. As Leslie Norton points out in Barron’s (page M7 ― In Love With Japan Yet Again), valuations look pretty compelling too, which means that whatever bad news there is, it is already priced in. Japan trades at book, whereas the U.S.A. trades at 2.2x book and nearly 2x for Europe as well as non-Japan Asia.

Update on Rosenberg 1/10:
If you want value, a market where all the bad news has been priced in, that has lagged woefully behind, that is ignored by the analysts, underowned by global portfolio managers and has seemingly found a way to stop its currency from appreciating to new overvalued highs which until recently was crimping its large-cap multinationals, it is Japan...

Forward P/E ratios are barely higher than 13x, about the most compelling they have been in the past two decades. According to the FT, 25% of Japanese companies trade at a single-digit multiple compared with a mere 4% in the U.S.A.. The Nikkei was down 3.0% last year even as practically every other market rallied, so it does have some catching up to do and the market decline in 2010 obviously opened up some serious value. Analysts globally have been dropping coverage of Japanese stocks ― a contrary bullish signpost. According to the FT, the dividend yield in Japan now exceeds the sub-2% you get in the U.S.A. and yet the market there competes with a 1% JGB yield compared with a 3.3% yield in the United States.

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