Japan stocks are a bargain but there are few takers

Japan stocks are a bargain but there are few takers

As the developed world’s cheapest equity market and home to a rising breed of more profitable companies, the Japanese market should be a safe investment bet, Trend reports referring to Reuters.

Yet fund managers are bypassing it on fears ebbing global growth could knock Japan’s economy, home to multinationals like Toyota Motor Corp and Sony Corp, which are closely tapped into world supply chains.

Long dogged by disappointment over the structural reforms Prime Minister Shinzo Abe had promised, it’s not hard to see why funds are lukewarm toward the cheap market; the world’s third-biggest economy barely escaped recession earlier this year, and the yen hasn’t weakened enough to prop up its exports.

In a warning sign of what might be in store, a Wall Street rout this week sent the Tokyo’s Nikkei share average crashing into bear market territory, underscoring how synchronized Japan is to the global economic cycle.

Prospects for global demand are at their most dire in years, hurt mainly by the year-long U.S.-China trade war and the Federal Reserve’s steady monetary tightening.

“Japan is a global cyclical market and it’s the wrong time in the cycle,” said Mark Baribeau, head of global equity at Jennison Associates, one of PGIM’s investment arms in Boston, which manages $181 billion in assets.

“We are very much underweight Japan. At different timing of the cycle, it can be more attractive.”

It is little surprise then that worries about slowing economic growth and the outlook for corporate earnings have sent investors scampering to the exits.

The Nikkei has fallen rapidly from its 27-year peak in early October and is now down 12.1 percent for the year. The Topix has tumbled 21.8 percent from its January high. Exchange data shows foreigners' net selling of Japanese shares is on track to hit the largest ever this year, with their net selling soaring to 13.1 trillion yen ($120 billion), including in cash equities and in futures, at the end of last week.

A survey of 44 big, long-only global or international funds by Goldman Sachs Japan shows active foreign investors have Japanese stocks at the most underweight since 2010.

Kathy Matsui, Goldman’s chief Japan strategist, who visited U.S. clients last month, said many investors there insisted Japan Inc’s strong earnings growth was achieved by the help of the Bank of Japan’s “magic” and thus not sustainable.

The BOJ's aggressive monetary easing program since 2013 has indirectly weakened the yen JPY= and boosted exporters' profits. The central bank has also supported the market more directly by purchasing hefty amounts of shares every year.

While the BOJ’s stimulus has propped up stocks, it has failed to deliver the primary goal of achieving two percent inflation and to foster sustainable economic growth.

Moreover, critics say the BOJ’s purchases of six trillion yen of exchange-traded funds (ETFs) a year has reduced tradable shares and increased market volatility.

The world’s largest money manager BlackRock, which has $6.44 trillion in assets under management globally, downgraded its stance on Japanese equities in July to neutral from overweight.

Nigel Bolton, London-based chief investment officer (CIO) of international equities at BlackRock, said he sees “no catalysts for change.”

Such views come despite the rise over recent years of Japanese companies’ notoriously low return-on-equity to levels on par with many European peers.

And Japanese corporate profits have outpaced America’s since Prime Minister Abe took office in December, 2012. Shares are cheap, trading well below 12 times earnings, which is the lowest in six years.

“In Japan, you are paying 2008-style discounts and Japanese companies have out-earned both European and U.S. companies. It’s just that no one wants to pay for it,” said Norman Villamin, Zurich-based CIO at Swiss private bank Union Bancaire Privée, with 128 billion Swiss francs ($130 billion) in assets.

Indeed, many investors see these improvements as cyclical, and have doubts about the sustainability of earnings growth.

“You’ve seen Japanese returns on equity rising to about the 10 percent level - it’s very solid by traditional Japanese standards. But the question is if it’s going to go up or down here,” said Ned Gray, global and international value equity CIO at Macquarie Investment Management in Philadelphia.

Mustafa Sagun, equities CIO at Principal Global Investors, with $451 billion in assets, said the Iowa-based asset manager remained modestly underweight Japan over the past couple of months. “After the (post-Fed) selloff, there are great value opportunities in Asia, including Japan. But our stance did not change,” Sagun said, referring to a sharp equities downturn after the latest Fed rate hike this month - the fourth for the year.

“The catalyst needs to be resolution of uncertainty regarding potential trade wars and U.S. interest rates.”

Bitcoin price down 12.7%
Bitcoin price down 12.7%
WB extends deadline for implementation of agricultural project in Azerbaijan
WB extends deadline for implementation of agricultural project in Azerbaijan
Georgia continues to support its citizens amid COVID-19 pandemic
Georgia continues to support its citizens amid COVID-19 pandemic
Loading Bars
Latest
813 more coronavirus cases recorded in Kazakhstan over 24 hours
Kazakhstan increases export to Greece despite COVID-19
World Bank to help Ukraine purchase COVID-19 vaccines
Sweden to reach COVID-19 peak in two weeks: forecast
Imports of fuels and lubricants up to Georgia
Trump says will leave White House if Electoral College votes for Biden
Moscow documents 77 deaths from COVID-19 in past 24 hours
WHO urges African states to strengthen readiness for COVID-19 vaccine
UK records another 17,555 coronavirus cases with 498 cases
China calls for healthy, stable military ties with U.S.
Italy reports 29,003 new coronavirus cases, 822 deaths - health ministry
Russia's Sputnik V developers call on AstraZeneca to try combining vaccines
Paris does not recognize so-called "Nagorno-Karabakh Republic" - Foreign Ministry
Recovery of oil prices has positive impact on Kazakhstan’s external balances - IHS Markit
Group of German medical experts arrives in Kyrgyzstan to fight COVID-19
Georgian NCDC Head urges people over 70 to stay at home except in necessary circumstances
Iran, Russia to cooperate on COVID-19 vaccine development
Bitcoin price down 12.7%
Armenian eco-terror in Karabakh constitute serious threat to peace and security in region - opinion
Hungary, Poland double down to try to eject rule-of-law condition from EU budget
Over 3,500 coronavirus-related deaths recorded in Moscow in October
Belavia resumes regular flights from Baku to Minsk in early December
Iran hopes Kish-Istanbul-Abadan flights to improve its trade
Kazakhstan Railways opens tender to buy welding equipment
Georgia to support businesses amid new coronavirus restrictions
WB extends deadline for implementation of agricultural project in Azerbaijan
Turkey steps up inspections as coronavirus pandemic figures climb
Cavushoglu and Stoltenberg discuss situation in Karabakh
Swedish royals test positive for COVID-19
England reveals new regional COVID tiers in fight against coronavirus
Azerbaijani gymnasts reach finals of 36th European Championship in Ukraine
Georgia continues to support its citizens amid COVID-19 pandemic
News on return of Azerbaijani soldier captured by Armenians false, relative says
Azerbaijan sends note of protest to France
Ample opportunities for investments to be created in Karabakh – minister
Azerbaijani's negotiations with UAE on renewables nearing completion
Kazakhstan, Mongolia eye signing roadmap for trade, economic co-op
Russia bans import of tomatoes from Uzbekistan’s Fergana region
36th COMCEC session opens under chairmanship of Turkish president (PHOTO)
Uzbek Ministry of Finance publishes draft law on increasing taxes on gasoline, diesel
Russian Gazprombank predicts Azerbaijan's economic recovery in 2021
iPhone 12 Pro Max and iPhone 12 Mini now at Azercell Exclusive shops!
Iran becomes self-sufficient in building oil, gas platforms
Cotton growing in Azerbaijan hits record - agriculture ministry
Italian municipalities adopt documents expressing solidarity with Azerbaijani people
Uzbekistan to grow industrial cannabis in Sardoba district
Azerbaijan detects 3,705 new COVID-19 cases, 1,609 recoveries
Turkmen Ministry of Construction opens tender for equestrian sports complex construction
Azerbaijani, Saudi FMs exchange views on current situation in Karabakh
Uzbekistan reveals data on its ICT sphere enterprises and organizations
Azerbaijan to export persimmons to Slovakia and Czech Republic
Level of religious tolerance in Azerbaijan is much higher than in France - ISESCO ex-director
Kazakhstan's exports to Switzerland decrease year-on-year
Azerbaijani medical insurance agency signs contract with tender-winning IT company
Resolution adopted by French Senate must be canceled – Azerbaijani NGO head
Volume of Turkish textile clothing supplies to Kazakh market surges
Latvian AirBaltic cancels Riga-Tbilisi-Riga flights
Reconnaissance work completed within Baiterek space complex creation in Kazakhstan
Thermal power plant modernization, other projects underway in Kazakhstan's Karaganda
Georgia imposes further restrictions to curb spread of coronavirus
Georgian carrier to launch regular cargo flights from China to Europe
Russia's Rostelecom expects to develop transit routes through Turkmenistan
Average monthly salary in Azerbaijan's Nakhchivan rises
Azerbaijani, Afghan FMs discuss latest situation in region
WB, AIIB to fund rural infrastructure development in Uzbekistan
Azerbaijani, Indonesian FMs stress importance of trilateral ceasefire statement
Austria fully supports Uzbekistan obtaining of EU’s GSP beneficiary status
Turkmenistan's Dashoguz region opens tender for installation work
France not part of Karabakh settlement, but part of problem - Turkish defense minister
Japanese companies to provide technical support for terry production in Uzbekistan
Germany's hotspot district to launch COVID-19 mass tests for children
Yield of citrus fruits in Azerbaijan up
Capital of Kazakh companies operating in Turkey revealed
Iran boosts its pistachio exports
World Economic Forum announces Azerbaijan's road quality score
Share of assets in Azerbaijani banking sector declines
Kazakhstan eyeing amending legislation to support renewable energy dev't
Georgian Hualing Free Industrial Zone plans to finalize deal with 4 new companies
Mortgage lending in Azerbaijan through state line grows manifold
Kazakhstan to launch hundreds of industrial projects before year-end
Azerbaijani ICT company wins tender on purchase of licenses
Central Bank of Azerbaijan discloses data from foreign exchange auction
Employment in Iran's West Azerbaijan Province increases
Buta Airways to Increase the Frequency of Flights Performed to Izmir
Azerbaijan, Hungary discuss possibilities of attracting investors to liberated territories
Georgian Huliang FIZ offering available land plots to potential investors
Azerbaijani NBCO talks about its activities amid coronavirus
Azerbaijan’s carpet producer signs tender contract
Many members of French Senate unaware war in Karabakh ended (VIDEO)
Number of people infected with coronavirus pandemic in Iran exceeds 900,000
Baku Stock Exchange admits local investment company
Uzbekistan eyes to set up local production of various vaccines
France does not deserve Azerbaijan’s confidence – senator
Bahar Azadi gold coin price still falling in Iran
Bank mortgages in Azerbaijan rise
Full text of Azerbaijani parliament’s statement against French Senate’s resolution
Iran's economy remains strong and steady – Iran's president
Turkmenistan to be vital strategic partner, gas supplier to China long-term - Wood Mackenzie
EDB talks Kazakhstan's economy growth forecast, return to pre-COVID levels
Ambassadors of Turkey, Iran to Azerbaijan hold discusses on Karabakh
All news