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

The best one-year fixed savings accounts - February 2023
Savings

The best one-year fixed savings accounts - February 2023

Earn almost 5% on one-year fixed savings accounts.
3 Feb 2023
Best regular savings accounts – February 2023
Savings

Best regular savings accounts – February 2023

Looking to stash small amounts away each month? You can now earn as much as 7% on regular saving accounts. We list the ones worth looking at.
3 Feb 2023
Which supermarket is the cheapest?
Personal finance

Which supermarket is the cheapest?

With food inflation hitting almost 17%, we look at which is the cheapest supermarket, plus the Competitions and Market Authority’s plan to introduce u…
3 Feb 2023
After slumping 42% last year, what's next for Scottish Mortgage?
Investment trusts

After slumping 42% last year, what's next for Scottish Mortgage?

After a spectacular couple of decades, the Scottish Mortgage Investment Trust fell by 42% last year. We take a look at the trust's performance and dis…
3 Feb 2023

Most Popular

Best savings accounts – February 2023
Savings

Best savings accounts – February 2023

Interest rates on cash savings are making a comeback. We look at the best savings accounts on the market now
3 Feb 2023
The best one-year fixed savings accounts - February 2023
Savings

The best one-year fixed savings accounts - February 2023

Earn almost 5% on one-year fixed savings accounts.
3 Feb 2023
After slumping 42% last year, what's next for Scottish Mortgage?
Investment trusts

After slumping 42% last year, what's next for Scottish Mortgage?

After a spectacular couple of decades, the Scottish Mortgage Investment Trust fell by 42% last year. We take a look at the trust's performance and dis…
3 Feb 2023