Japanese Stocks Cheap Relative to U.S. Equities, Amari Says

By Adam Haigh

Japanese stocks are cheap relative to U.S. equities given the outlook for earnings, even after a more than 50 percent surge in the Topix Index since mid-November, Economy Minister Akira Amari said.

The Topix, the nation’s broadest equity measure, trades at 1.2 times book value, compared with 2.3 for the Standard & Poor’s 500 Index and 1.7 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg. The Japanese gauge rallied 46 percent from Nov. 14, when elections were announced that returned Prime Minister Shinzo Abe to power, fueling optimism the new government would do more to beat deflation.

“Given the potential of Japanese companies, the valuation of the Japanese market is too low compared with markets in countries like the U.S.,” Amari said in an interview on NHK’s “Sunday Debate” program. “Obviously it’s good that the stock market is rising, because it will boost companies’ reserves, increase certainty for pension payments, stabilize the society, and turn into a positive spiral. It will be a challenge how far we can take it.”

Japan’s equity markets rallied as the yen fell 19 percent against the dollar since mid-November amid speculation the Bank of Japan will loosen monetary policy and Abe will implement reforms to end more than a decade of deflation. Abe nominated Haruhiko Kuroda last month to lead the central bank.

Earnings-per-share (TPX) for companies on the Topix will climb 15 percent in the next 12 months and 20 percent the subsequent year, according to data compiled by Bloomberg. That compares with the 10 percent expansion forecast for companies on the S&P 500 in the next year and 10 percent the year after.

Dow Record

U.S. equity markets climbed the past three months as better-than-expected housing and jobs data showed the world’s largest economy is recovering from the financial crisis. The Dow Jones Industrial Average (INDU) surged to a record and the S&P 500 climbed on March 14 to within two points of its record closing level of 1,565.15 set in October 2007.

The S&P 500 has more than doubled from its bottom in 2009, fueled by corporate earnings that topped estimates and monetary stimulus from the Federal Reserve. The 116-year-old Dow surpassed its record on March 5, and climbed higher each day through March 14.

U.S. economic growth will need to accelerate to “ridiculously strong levels” to justify any advance for the S&P 500 above 1,600, Jim O’Neill, chairman of Goldman Sachs Asset Management, told Bloomberg Television March 15.

To contact the reporter on this story: Adam Haigh in Sydney at ahaigh1@bloomberg.net

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