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 13.3x 2021 forward earnings, almost 37% 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 1.3x 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 12.7x 2021 forward earnings, and as a point of reference, a 48% discount to U.S. small caps trading at 24.5x.
4. Japan’s Attractive P/E Relative to History
Japan’s current 2021 forward P/E multiple is slightly higher than its 10-year average of 14.5x.
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.