Japanese stocks offer plenty of promise at the right price
After decades of disappointment, Japan is packed with opportunities for investors, says Alex Rankine.

“Welcome to the weirdest of Olympics”, says Scott Stinson in Canada’s National Post. A flare-up in Covid-19 cases prompted the city to bring in strict restrictions, so the games opened in an expensive, gleaming but almost empty stadium – “not exactly what Tokyo first had in mind”.
“I feel sorry for the organisers,” says Liam Halligan in The Daily Telegraph. “They are trying to stage the biggest sporting event on earth… under astonishingly difficult circumstances.” A bar on spectators means the hoped-for boost to the local leisure industry won’t materialise. “The contrast with the 1964 Tokyo Olympics”, which came to symbolise Japan’s “astonishing post-war economic renaissance… is heart-breaking.”
Decades of disappointment
The post-war boom ended in the early 1990s. The Nikkei-225 index peaked close to 39,000 in 1989 and has never returned to that level. This week, at around 28,000, it was still 28% short of the 1989 peak. The Topix index, a more accurate measure of the market than the Nikkei, finally regained its 1991 levels in February 2021.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Japan’s markets have suffered “the longest downward phase in any major stockmarket in living memory”, says Ian Cowie in The Sunday Times. “Even very patient investors cannot be sure of topping the podium”. Still, this is the world’s third-biggest economy and “the first step towards making a profit is often to buy low”. On a price/earnings (p/e) ratio of 17, Japan is much cheaper than America’s rating of 22.
Japanese shares have underperformed this year, says Rosie Murray-West in The Mail on Sunday. The country “had controlled the spread [of Covid-19] so well that it has been complacently slow to roll out a vaccine programme”. Still, with 37% of the population having received a first jab, it is now getting its act together.
Land of opportunity
Japan is “packed with opportunities, especially in digitalisation, robotics and electric cars”, says Chern-Yeh Kwok of the Aberdeen Japan Investment Trust. The online economy is less mature than elsewhere, says Murray-West, leaving more scope for future growth: “We may think of Japan as a land of bullet trains and robotic convenience, but it is also a country that continues to be reliant on fax machines and where only 8% of purchases are made online”. Prime minister Yoshihide Suga is trying hard to change that.
For all the doom-mongering, the Nikkei has actually grown at a compound 9.8% annually over the last decade in sterling terms, says Simon Edelsten in the Financial Times. That is behind America but better than the FTSE, Europe and even emerging markets. Japan’s economic performance has been mixed, but the stockmarket is “dominated by multinational companies”, much of whose income is earned abroad. Japan offers investors access to the Asian growth story combined with the comforts of investing in a developed market. Investors may want to take a look at the JPMorgan Japan Small Cap Growth & Income (LSE: JSGI) and the Baillie Gifford Japan (LSE: BGFD) investment trusts.
Japanese corporate governance enters the modern age
Japan’s shareholder “revolution” still hangs in the balance, says Mike Bird in The Wall Street Journal. In 2014, then-prime minister Shinzo Abe initiated a push to bring corporate governance into the modern age. He put pressure on businesses to appoint more outside directors onto boards and to focus on delivering value to shareholders. Risk-averse Japanese managers had long preferred to hoard cash rather than invest it or pay it out to shareholders as dividends.
The war is still being waged across Japanese boardrooms, says Bird. On one side, activist foreign investors; on the other, old-school managers who don’t like being told what to do. Take a recent quarrel at Yakult, the probiotic drink maker. Activist investors see an established brand with a golden opportunity to capitalise on the global wellness trend and expand overseas. Yet the firm’s board is stuffed with company insiders and “has gone from having two non-Japanese members… to having none”.
Conglomerate Toshiba was revealed this year to have “colluded with the Japanese government to suppress activist investors”, say Leo Lewis and Kana Inagaki in the Financial Times. Investors also complain that reforms designed to clamp down on cross-shareholdings – another tactic to limit shareholder influence – have been watered down.
The tide is turning in favour of the activists, says Carleton English in Barron’s. Shareholders forced Toshiba’s CEO to resign in April. Those wins are encouraging other campaigns: data from Lazard shows that Japan played host to 26% of non-US activist campaigns in the first half of 2021, up from just 6% in 2015. “Challenges at Japanese companies were once unthinkable”; now the country is becoming a “hotbed” for shareholder activism.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.
Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.
He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.
Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.
-
How to achieve a secure retirement, as more retirees admit to struggling with debt
Twenty-six percent of retirees now have unsecured debt – a sharp rise compared to two years ago – with many underestimating how much a typical retirement costs
-
The key October self-assessment tax return deadlines to remember so you can avoid a shock bill
There are two important dates for self-assessment taxpayers to remember in October
-
Small UK industrial stocks are hidden gems
Opinion Ed Wielechowski of the Odyssean Investment Trust highlights three of his favourite British small-cap industrial stocks
-
Aurora Innovation is running on empty – is it overvalued?
Aurora Innovation, a maker of self-driving trucks, may have promised far more than it can deliver
-
'Ride the recovery in emerging markets': Gustavo Medeiros of Ashmore Group tells MoneyWeek
Interview What's the outlook for emerging markets? Gustavo Medeiros, head of research at Ashmore Group, gives his analysis and reviews progress in developing economies
-
What is the Enterprise Investment Scheme and should you have one?
The Enterprise Investment Scheme is tax-efficient and potentially lucrative. Taking a chance on the scheme could trim your family’s IHT bill, says David Prosser
-
The alcohol industry is suffering as consumers sober up – is it still worth investing in the sector?
Changing consumer tastes are rocking the alcohol industry, but the best players are adapting their strategies. Buy them while their shares are still cheap
-
A strange calm in credit
Corporate bond markets remain remarkably relaxed, with yields that offer little compensation for risks
-
'The City's big bet on green finance fails to pay out'
Opinion Insurers and banks are backing away from “green finance”, and there is not much sign of the green boom we were promised. That’s a problem for the City
-
Why is English football thriving – and can it last?
What has gone so right for English football? The national team has found its feet; the Premier League is swimming in money and profits are soaring