Investors Are Turning To Japan

Investors Are Turning To Japan

over 3 years ago2 mins

Investors may associate the land of the rising sun with falling growth – but the performance of Japanese stocks, including one index up 150% since March, might just surprise you 😲

What does this mean?

Even before feeling the full impact of coronavirus, Japan’s economy – hardly a paragon of growth recently, thanks in part to a declining population – was shrinking at its fastest rate in years. Yet chronically low economic growth hasn’t always translated into poor performance for the country’s stocks.

Indeed, new analysis from major hedge fund Man Group this week shows that Japanese shares did something neither the US, Europe, nor emerging markets managed during the last global “business cycle”. Japan’s stocks increased their average profit, profit margins, and dividends on an annualized basis – while simultaneously becoming cheaper in terms of prices compared to earnings.

EPS = earnings per share
EPS = earnings per share

March’s bear market may have thrown that inexpensiveness into sharper relief. Investor interest has since helped the Japanese **Nikkei 225 **index recover just about all of its 2020 losses – in contrast to, say, European equivalents. One thing Japan has in common with many regions, however, is a tsunami of hot new stocks hitting markets in the second half of this year… 🌊

Why should I care?

As in the US, some of Japan’s biggest businesses have been boosted by coronavirus: cash-flashing tech conglomerate SoftBank, for example, has seen its share price rise 50% this year. But the same is true of the country’s smallest – and newest – public companies.

The Mothers **market on the **Tokyo Stock Exchange last week hit a 14-year high, fueled by high demand from local retail investors and several large overseas funds for its 320 stocks – many of which are benefiting from the (potentially long-term) changes engendered by the virus.

Many Mothers stocks deal in tech or biopharma (Source: Japan Exchange Group)
Many Mothers stocks deal in tech or biopharma (Source: Japan Exchange Group)

High volatility and fears of Nasdaq-like hype may encourage Japan-focused investors to stick to an exchange-traded fund (ETF) tracking the “large-cap” Nikkei 225 – still currently trading near its cheapest ever compared to US stocks. But the Simplex TSE Mothers ETF has risen 150% in the last seven months… 😏

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