Although Japanese equities appear relatively inexpensive compared to other major global markets, most Japanese firms have produced little excess return in the past 10 years and offer only a limited chance of adding shareholder value
Trading at the weighted average of 1.4 times book value, Japanese equities look relatively inexpensive against other major global markets (1.8 times for Europe and 2.8 times for the US) and their historical average of 2.2 times. Those who experienced the mega-bull run of the Tokyo stock market in the 1980s probably still remember the incredibly high premium valuation enjoyed by the Japanese market at that time. So what has caused the de-rating? The chart offers a fundamental answer. Japanese companies on aggregate have hardly earned any excess return over their cost of capital in the p...
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