Why Japan is a Promising Market for Investors
Introduction
For many years, the United States has been a popular choice for investors due to its attractive returns and wide range of opportunities. However, according to strategist Tom Stevenson, Japan currently offers better valuations and investment potential. In an interview with Pro, Stevenson stated that Japan provides a combination of earnings growth, cheap valuations, and policy support that makes it an appealing market.
Valuations and Performance
Compared to the U.S., Japanese shares are trading at lower price-to-earnings ratios. Stevenson highlighted that Japanese shares are currently trading at around 15 times this year’s expected earnings and 14 times earnings two years out. In contrast, the U.S. market trades at around 20 times earnings. This favorable valuation has contributed to the Nikkei 225 Index’s year-to-date increase of over 18%, while the S&P 500 Index has risen by around 11%.
Positive Outlook for Japan
Daniel Hurley, a portfolio specialist at T. Rowe Price, also expressed optimism about Japan’s market. Hurley emphasized that Japan’s supportive backdrop, including currency dynamics, global growth, and corporate governance reform, contributes to a positive outlook for Japanese equities. Additionally, Japan is experiencing its strongest economic growth since the early 1990s, with improving inflation levels and positive earnings revisions.
Investment Opportunities
Both Hurley and Stevenson believe there are promising investment opportunities in Japan, particularly among exporters. The weak yen compared to the dollar makes Japanese exporters competitive and boosts their earnings. Hurley suggested that investors consider industrial equipment supplier Keyence, telecommunications player Sony, financial services group Orix, and cancer therapeutics developer Astella Pharmaceuticals as top picks. Stevenson, on the other hand, recommends funds with exposure to Japan, such as the Baillie Gifford Japanese Fund and the Schroder Japan Trust.
Conclusion
With attractive valuations, a positive economic outlook, and promising investment opportunities, Japan presents an appealing market for investors. The combination of earnings growth, cheap valuations, and policy support makes Japan a worthy consideration for those seeking attractive returns.