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”.
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
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”.
-
Investors will reap long-term rewards from UK equitiesOpinion Nick Train, portfolio manager, Finsbury Growth & Income Trust, highlights three UK equities where he’d put his money
-
The graphene revolution is progressing slowly but surelyEnthusiasts thought the discovery that graphene, a form of carbon, could be extracted from graphite would change the world. They might've been early, not wrong.
-
'Investors will reap long-term rewards from being bullish on UK equities'
Opinion Nick Train, portfolio manager, Finsbury Growth & Income Trust, highlights three UK equities where he’d put his money
-
The graphene revolution is progressing slowly but surely – how to invest
Enthusiasts thought the discovery that graphene, a form of carbon, could be extracted from graphite would change the world. They might've been early, not wrong.
-
A strong year for dividend hero Murray International – can it continue its winning streak?Murray International has been the best-performing global equity trust over the past 12 months, says Max King
-
The shape of yields to comeCentral banks are likely to buy up short-term bonds to keep debt costs down for governments
-
The sad decline of investment clubs – and what comes nextOpinion Financial regulation and rising costs are killing off investment clubs that once used to be an enjoyable hobby, says David Prosser
-
How to profit from the UK leisure sector in 2026The UK leisure sector had a straitened few years but now have cash in the bank and are ready to splurge. The sector is best placed to profit
-
Who won the streaming wars?The battle of the TV and film streaming giants for dominance looks to be entering a final phase. The likely winner may surprise you, says Simon Wilson
-
'Investors should expect a good year for equities'Opinion The economy is positive, and investors are still cautious, says Max King
