What about Japan?

sundarkambam answered 2 years ago …

The following article discusses the attractiveness of Japanese equity for the year 2008. Read on....

Link : http://talkingpoint.brighttalk.com/files/2008%20outlook_Japan.pdf

As we look into 2008, there are several reasons for optimism. Valuations in
Japan are attractive in both relative and, in a number of instances, absolute terms. For example, a number of stocks are trading at valuations of six or seven times this year’s earnings, with cash on the balance sheet, estimated growth of 10-15% over the next few years and where the management team is sound – so there are plenty of investment opportunities to exploit on a medium to longer-term view.
Many globally competitive Japanese companies are now trading at historically low P/E multiples and are often cheaper than other global competitors. These include major auto, business machine and heavy machinery groups. These companies are not immune from the expected global economic slowdown or the impact of a strengthening yen. However, they have competitive strengths in terms of their ability to expand global market share and to cut costs to maintain profitability over time. We also think the financial sector -
including mega banks, insurance and non-bank financial companies - looks very interesting going into the next year. As we get a clearer picture of the sub-prime repercussions, which we believe are manageable for most of the Japanese financial companies, their share prices are likely to rebound.
Another indicator of attractive valuations in Japan is that dividend yields have recently moved above the Japanese government bond yield (historically, this has been a very good indicator for an equity market rally). While it is difficult to say what is going to turn things around, we believe that when sentiment does turn it will do so very quickly. We would not say that this is necessarily going to happen in the next few months but we are near to the point where the rally should start from. Overall, while it is not easy to identify a catalyst
that will drive a rally, we can see considerable upside potential in the market.
Profits growth continues to be good
Other positives include the fact that corporate confidence in Japan has withstood the recent financial market turbulence. Overall, the pattern that has emerged during the recent half-year earnings season has been similar to previous company reporting seasons. The tone has been generally positive, with profits up about 10% in aggregate (which is impressive given that the effects of slowing US growth and the stronger yen are, in many respects, largely reflected in reported earnings). However, companies that have surprised investors on the downside have been hit extremely hard. The trend we have observed is that the forecasts of company earnings at the beginning of the year have been far too conservative, and are subsequently revised upwards at the half-year and full-year stages (we are expecting to see the same again following the end of the financial year in March
2008). There have also been some encouraging recent moves in terms of corporate governance, including a sharp increase in share buybacks, while dividend payments this year are forecast to grow at a faster rate than profits (unlike in previous years).