In an interesting report published by the bank, Morgan Stanley, the view is that Japan “has rarely been cheaper.” Also in this piece on CNBC, Weizhen Tan adds some quotes by this US investment bank. “In a number of respects, Japan is the opposite image of the US; it is tactically oversold and unloved while average relative valuations are at all-time lows,” the report said. The investment bank painted a solid picture of corporate earnings, and said any improvement in these Chinese economy would have a positive impact on Japanese firms.
The Japanese index TOPIX fell by 14% compared to a year ago, while the Nikkei 225 has declined by about 6.5%. Compared to the US, the S&P 500 is 5.65% higher and the Nasdaq Composite is up 12% in that same period. The S&P 500 achieved record highs earlier this year on the back of stronger-than-expected quarterly profits from several of the largest US firms that surprised many analysts. Despite Europe also being undervalued, Morgan Stanley says in their report that it favors Japan over Europe as the US might impose auto tariffs, which for now, are delayed.
In our view, the timing of the US-China trade talks, and breakthroughs as well as new tariffs imposed on European auto makers are milestones that will likely provide opportunities for smart and well-thought-out trades. Worries about Japanese stocks have increased as the US-China trade talks have been elevated to a higher level of tension.
Japan has seen its sales tax increase postponed twice, amid concerns about a weakening economy. The country has also been forced to come to grips with the rising cost of financing welfare for a rapidly aging population.