Japan takes a small step towards post-pandemic reopening

Foreign students and business travellers will be allowed in to Japan from next month, although tourists will remain barred for now.

Japan is open for business again. The country’s borders have been sealed for long periods during the pandemic, but last week Tokyo announced that foreign students and business travellers will be allowed in from next month, say Wataru Suzuki and Francesca Regalado for Nikkei Asia. Quarantine rules will also be eased, although tourists remain barred for now. The announcement follows public pressure from business groups and universities. The border measures have deterred foreign investment and encouraged talent to head elsewhere.

Meanwhile, the benchmark Topix stock index has recovered from its Covid-19 slump and trades 8% above pre-pandemic levels. However, it has followed other world markets lower this year and entered a technical correction (defined as a 10% fall from a recent peak) last month.  

Ready for prime time 

Back in the 1980s the Tokyo market was a behemoth, accounting “for some 40% of the world’s stockmarket value”, says Suryatapa Bhattacharya in The Wall Street Journal. Yet things went south at the end of that decade and today it ranks behind bourses in New York, Europe and China in terms of market capitalisation. About half of stocks listed in Tokyo trade for “less than their book value”, a sign that investors have little faith in the ability of managers to create value. Japanese blue-chips have long been accused of “sitting on cash and stagnating”.

The Tokyo Stock Exchange is trying to shake up that image with “the biggest overhaul in 60 years”. It wants to create a new elite section called “Prime”, with stricter rules for members about independent directors and communications with investors. However, loopholes in the new rules mean critics think the changes amount to little more than “window dressing”.  

Small is beautiful 

Still, corporate reforms over the past decade have started to make a difference, says Max Godwin of Eastspring Investments. “Deleveraging of balance sheets, rising dividend payouts, stock buybacks” and more “contested takeovers” are all positives for investors. Perhaps most intriguing are smaller stocks, which are less heavily covered by analysts and make up about two-thirds of the investment universe. With “undemanding valuations”, the “small- and mid-cap space is prime territory for longer term valuation-driven stock pickers”. 

Business confidence is strong, as evidenced by “share buyback activity at a ten-year high” and strong “capital expenditure levels”, adds Mary McDougall in the Investors’ Chronicle. Valuations are attractive, with the MSCI Japan trading on a 12-month forward price-to-earnings ratio of 15, compared to the developed-market average of 19.5. Investors in Japan have learnt from bitter experience not to get too excited, but “there are reasons to be cautiously optimistic for 2022”.

Recommended

Delivering profits : should you buy Royal Mail shares?
Share tips

Delivering profits : should you buy Royal Mail shares?

The volume of parcels delivered by Royal Mail soared during the pandemic, and so did its profits. But it has been coming under pressure lately. So, as…
19 May 2022
Avoid easyJet shares – there are better airlines to invest in
Share tips

Avoid easyJet shares – there are better airlines to invest in

EasyJet used to be one of Europe’s most impressive airlines. But now it is facing challenges on all fronts and losing out to the competition. Rupert …
19 May 2022
Despite the crypto crash, bitcoin still has a bright future
Bitcoin & crypto

Despite the crypto crash, bitcoin still has a bright future

Cryptocurrencies have crashed hard, with bitcoin down by more than 50% from its peak. But, says Dominic Frisby, bitcoin still has a future – it is the…
19 May 2022
Do Kwon: the King of Crypto Lunatics
People

Do Kwon: the King of Crypto Lunatics

Cryptocurrency entrepreneur Do Kwon liked to ruffle feathers and stir things up in his industry. But the collapse of his empire has left investors des…
19 May 2022

Most Popular

Get set for another debt binge as real interest rates fall
UK Economy

Get set for another debt binge as real interest rates fall

Despite the fuss about rising interest rates, they’re falling in real terms. That will blow up a wild bubble, says Matthew Lynn.
15 May 2022
Is the oil market heading for a supply glut?
Oil

Is the oil market heading for a supply glut?

Many people assume that the high oil price is here to stay – and could well go higher. But we’ve been here before, says Max King. History suggests tha…
16 May 2022
Value is starting to emerge in the markets
Investment strategy

Value is starting to emerge in the markets

If you are looking for long-term value in the markets, some is beginning to emerge, says Merryn Somerset Webb. Indeed, you may soon be able to buy tra…
16 May 2022