Sources: Bloomberg & NIM Solutions
• Japanese equities have long been viewed as a "value trap", where companies prioritize market share, accumulate cash, and give little care to shareholder returns. However, they are staging a comeback so far this year, with the TOPIX index among the best performing equity indices year-to-date, up 20% in local currency terms.
• Several factors have contributed to this rally, such as rising inflation without monetary tightening, and currency weakness. What caught our attention is that the Tokyo Stock Exchange (TSE) has urged companies to set up plans to boost their valuations, particularly to those with a price-to-book ratio (PBR) below 1. The TSE has hinted a 2-year moratorium period for these companies to lift their valuations, risking being delisted if they fail to do so.
• In this week’s chart, we show the PBRs’ cumulative distribution of the companies within the TOPIX index. In it, we can see that almost 50% of these companies are valued below their book value, while the same is only true for 26% of the STOXX 50 companies and 0% of the S&P 500 companies. In addition, we find that a larger portion of Japanese companies hold more cash than liabilities than when looking at STOXX 50 and S&P 500 companies, which, all other things being equal, should help them conduct shareholder friendly activities going forward.
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