15 reasons Japan is finally having its shining moment
Once-lagging country is turning around its fortunes, David Rosenberg writes.
Over the past few decades, Japan has made headlines for its moribund economy and lagging stock markets. But things are starting to look up in the Land of the Rising Sun, according to David Rosenberg. Here, the chief economist at Gluskin Sheff + Associates lays out 15 reasons why investors should love Japan:
1. A 25-year secular downtrend has recently been broken. The Nikkei 225 is trading at levels last seen in July 1996, when the S&P 500 was trading below 700!
2. The negative correlation between the Nikkei 225 and the yen has been broken, suggesting that the Japanese market is trading more on fundamentals than currency speculation.
3. The Japanese small cap stocks have been outperforming the large caps, in a sign that homegrown domestic demand growth is staging a comeback.
4. The unemployment rate is below three per cent and there are 1.52 jobs now for every applicant, a number we have not seen since at least 1974.
5. Companies are complaining about labour shortages now more than at any other time in the past quarter-century, and the government is responding by allowing stepped-up immigrant labour.
6. The most bullish chart in the world is that of Japan’s 25-54 year old female labour force participation rate — helping to augment domestic income growth.
7. Japan is over eight per cent of the global market cap but global PM’s have an estimated six per cent of their portfolios exposed to Japanese stocks.
8. Dividend yields of two per cent now rival those in the U.S., but the difference is that in Japan, they command a 200 basis point premium over 10-year JGB yields. Payout ratios of less than 30 per cent compared with 40 per cent in the U.S.
9. Political stability — Prime Minister Shinzo Abe is in for another four years and with tremendous support. There are few countries in the world that have such a certain political outlook.
10. The P/E multiple in Japan is one of few globally that is not above the long-run norm.
11. Cash is coming off Japan Inc. balance sheets but still stand at 20 per cent of GDP versus five per cent in the U.S.; in other words, there is more dry powder in this respect in Japan.
12. Profit margins are at record highs and after seven months of CPI gains, the back of deflation has finally been broken.
13. The Bank of Japan remains highly accommodative and Abe’s victory ensures that governor Kuroda’s job is safe.
14. Only 10 per cent of Japanese households own stock compared with nearly 40 per cent of Americans who do.
15. More than half of Japanese individual assets are in bank deposits (earning 0 per cent) versus 14 per cent in the U.S.