over 2 years ago • 1 min
Japanese stocks have rarely looked this cheap compared to their US counterparts, and the discount is luring at least one high-profile investor to this unloved corner of global markets.
The chart above shows how the ratio of the price-to-earnings valuations for Japan’s Topix Index and America’s S&P 500 has declined to just 0.65. That makes Japanese stocks cheaper than at almost any time on record compared to the US: the average figure over the past decade (shown by the pink horizontal line) is 0.87.
That’s despite the fact that analysts have become much more optimistic about the country’s future profits: data from Bloomberg suggests analysts have hiked profit estimates for companies in the Topix by 73% since the start of the year – nearly double the increase for the S&P 500. Yet the Japanese stocks benchmark is only up 9% this year, compared to the S&P 500’s 20% gain.
That gap is prompting one notable investor to pick up some Japanese bargains: Cathie Wood’s Ark Investment Management. As the chart below shows, Ark’s Autonomous Technology & Robotics exchange-traded fund (ticker: ARKQ) has added to its holdings of Komatsu – a Japanese maker of construction equipment – almost every day since the middle of August. The Tokyo-based company is now the fund’s thirteenth-biggest holding.
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