Editorial Contributor
“The market capitalisation of the Japanese stock market is now less than its book value and, indeed, its Tobin “Q” measure (an assessment of the replacement cost of assets) is less than 1. Equities, quite simply, are selling for depression era prices.” The Japanese public has long since given up on equities, and foreign investor participation is at record lows, not unsurprisingly, following a 25 year bear market. Meanwhile, dividend yields relative to government bonds provide one the highest spreads in the world. As a contrarian, if you were baking an “asset class” cake, this would have the best ingredients possible.
However, in the closing months of 2012 the Nikkei has found its mojo again as it has risen sharply once more, moving in lockstep with the dollar-yen exchange rate. The table below (to 11 Dec 2012 — time of writing) shows the relative returns of the Japanese market, MSCI all world index (in dollars) and S&P 500 (in local terms), and you can see that it has modestly outperformed the all world, although is lagging the S&P 500 by a slim margin.
We have been bullish on Japan since the beginning of 2012, expecting the market to outperform the MSCI World index. For the first 6 months of the year, the index duly obliged, outperforming the S&P 500 and the World Index by quite a margin, but the wheels fell off during the summer as the military spat with China was ratcheted up and the Yen remained stubbornly strong.
CHART - NIKKEI TABLE
Shinzo Abe 58 | www.financial-spread-betting.com | January 2013