Columbia Threadneedle: Why investors should be optimistic about Japan

Columbia Threadneedle: Why investors should be optimistic about Japan

Aandelen Vooruitzichten Japan
Japan.jpg

By Daisuke Nomoto, Head of Japanese Equities

There are several reasons to be optimistic about Japanese equities in 2020.

First, consider valuations. Whether on price-to-book or price-to-earnings, Japanese stocks are among the cheapest in all developed equity markets. Take the price-to-book ratio of the MSCI Japan. Currently trading at only 1.2x, it is 50% lower than the MSCI Europe’s price-to-book ratio of 1.8x, and less than a half that of the MSCI USA’s figure of 3.4x.1

Second, let’s take a look at Japan’s economy. Sure, the upturn in 2019 has been only modest. But there are signs that the global economy may have hit the bottom. Some cyclical data points such as Japan’s exports and machinery tool orders had sharply dropped since the beginning of 2018, but they look to be bottoming. If the bottoming view proves correct, it may be helpful to remember that in 2016-2018, the MSCI Japan surged roughly 50% in just 19 months2 as global growth prospects improved. Even mere stability would benefit the cyclically geared Japanese equity market.