Once again, a stockmarket rally in Japan has faded away. The Topix index gained a fifth early this year, but has now slid back to a 28-year low. A global slowdown, the euro crisis and the strong yen, still seen as one of the safer major currencies in rocky times, have overshadowed a solid earnings season. The rising yen has dented the prospects of the market’s heavyweight exporters.
But there comes a point when all the bad news is in the price, and it looks as though we’ve reached it. As David Stevenson points out in our free daily investment email Money Morning, the Topix is on a price-to-book-value (p/bv) ratio of just 0.86, allowing investors to buy ¥100 of assets with ¥86. The FTSE 100’s ratio is 1.55.
Only during the Lehman debacle and the Asian crisis has the p/bv dipped lower, says Sam Perry of Pictet Asset Management. He also notes that dividend yields have now climbed above US levels, while cash-rich corporate Japan is beefing up its overseas presence.
It’s also becoming increasingly Asia-orientated, which bodes well longer-term given its comparatively high growth rates. With the market offering long-term potential, “it’s a great time for bargain hunters”, says Atlantis Investment Research’s Ed Merner.