Compelling Valuations in Japan
Japanese equities are currently trading at compelling valuation levels compared to other developed equity markets around the world and relative to their own historical averages. We believe the Japanese market deserves a closer look.
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Masakazu Takeda, CFA, CMAPortfolio Manager
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Tadahiro Fujimura, CFA, CMAPortfolio Manager
1. Attractive Price-to-Earnings Multiple
The price-to-earnings multiple, or P/E ratio, is the most common measure used to value equities. Japanese large-cap equities, as represented by the Tokyo Price Index (TOPIX), are currently trading on a P/E multiple of 11.4x 2022 forward earnings, almost 25% lower than the U.S.
2. Low Price-to-Book
On a price-to-book basis (P/B), Japanese equities are also offering investors great value compared with other global developed equity markets. TOPIX is trading at just 1.2x book value, a third lower than the average among the top developed equity markets and almost two-thirds lower than the U.S.
3. Japan Small-Caps at a Discount
Small-cap Japanese companies are also trading at a discount to international peers. Small-cap stocks in Japan are trading on just 10.8x 2022 forward earnings, and as a point of reference, a 33% discount to U.S. small caps trading at 16.1x.
4. Japan’s Attractive P/E Relative to History
Japan’s current 2022 forward P/E multiple is slightly higher than its 10-year average of 14.3x.
Summary
We believe Japan’s growth story is just starting to unfold. Following the advent of Abenomics, many Japanese companies are experiencing higher profitability due to corporate restructuring, better governance, and a more competitive currency. With Japanese equities currently offering attractive valuations compared to G7 developed country equity markets and relative to history, we believe Japan deserves a closer look as a component of an investor’s portfolio.
- In this article:
- Japan
- Japan Fund
- Japan Small Cap Fund
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