4 Aug

Japanese Stocks Are Inexpensive despite the Rally

WRITTEN BY Heidi Richardson

I still see opportunity in the Japanese market for the following key reasons.

Attractive valuations

While Japanese valuations have increased over the past year, they remain more attractive than those in the rest of the developed world (EFA) and the broader market, on both a price-to-earnings (or P/E) and price-to-book (or P/B) basis, according to 7/12/15 Bloomberg data. In fact, in mid-July, according to Bloomberg data, the P/B for Japan was still half that of the United States. It’s also worth noting that Japanese stocks remain inexpensive even after outpacing their major developed market counterparts year-to-date due to strong earnings momentum, according to Bloomberg data.

Japanese Stocks Are Inexpensive despite the Rally

Market Realist – Japanese stocks are inexpensive despite double-digit growth in 2015.

The graph above compares the price-to-book ratio of the S&P 500 (SPY) with that of the MSCI Japan index (EWJ), along with their respective 20-year averages. Both indices are trading slightly below their long-term averages.

The S&P 500 is currently trading at 2.8x book. Meanwhile, the MSCI Japan index is trading at exactly half of the S&P 500, at 1.4x book. Historically, the S&P 500 has traded at 3.0x book, and the Japanese index has historically traded at 1.6x book. Currently, Japanese stocks are trading at a discount of 50% over the S&P 500. Historically, the discount has been slightly less, at ~44%.

This suggests that Japanese stocks are not overpriced compared with American ones. Japanese stocks are cheap even after EWJ has given returns of 14.0% YTD, and American stocks (VOO) (QQQ) are flat for the year.

However, valuations alone do not warrant the purchase of securities. They could be overvalued or undervalued for long spells. There needs to be a catalyst in order to move stocks. We will discuss the probable catalysts for the Japanese stock markets in the rest of this series.

Latest articles

German chip maker Infineon Technologies has reportedly raised 1.55 billion euros (~$1.74 billion) in capital by selling its shares to fund its acquisition of Cypress Semiconductor (CY). Infineon has sold ~113 million new shares at 13.70 euros each.

As of June 18, Dunkin’ Brands (DNKN) was trading at $80.07, an 8.9% rise since reporting its first-quarter earnings on May 2. Also, DNKN was trading at a premium of 29.8% from its 52-week low of $61.69 and a discount of 1.6% from its 52-week high of $81.40.

19 Jun

Are Lower Oil Prices Weighing on ExxonMobil Stock?

WRITTEN BY Maitali Ramkumar

ExxonMobil (XOM) stock has fallen 7.1% in the second quarter so far. Let's review ExxonMobil's stock performance in comparison to oil price changes and equity market movements in the quarter.

19 Jun

As Facebook Unveils Libra, MSFT and CRM Join a Blockchain Group

WRITTEN BY Mayur Sontakke, CFA, FRM

On June 18, Facebook (FB) launched Libra, its own cryptocurrency. On the same day, CoinDesk published another piece of blockchain news that didn’t receive as much fanfare as Facebook’s Libra news. Was the timing a coincidence? We think not.

Uber Technologies (UBER) has picked Melbourne as another test site for its flying taxi service known as UberAir. The Australian city is the first international test site Uber has chosen for its flying taxi service. The addition of Melbourne brings the number of test locations Uber has picked for its UberAir service to three.

Lyft (LYFT) and Uber Technologies (UBER) are pushing back against California legislation that would require them to recognize their drivers as employees rather than independent contractors. The legislation would require companies like Lyft to give their drivers the compensation and benefits spelled out under California’s employment regulations.

172.31.59.107