Ignoring the political stalemate, Japan's best companies have got on with the job of restructuring a...
Ignoring the political stalemate, Japan's best companies have got on with the job of restructuring and stripping out costs in recent years, which means prices for Japanese stocks are now at their best levels for 30 years, says Stephen Mitchell, head of japanese equities at JPMorgan Fleming .
Forward price/earnings ratios are down to 20x on average - similar to prices paid in the West - because firms have been boosting profit margins faster than sales have grown.
Along with the improvements in profit margins has come improved cashflow, meaning companies can afford to step up capital expenditure within the domestic economy boosting domestic GDP. Inventory levels are already low, so firms are not making as many unsold goods as their competitors elsewhere.
Japanese firms have also been increasing their global market share in industries such as car making, with Toyota recently overtaking Daimler/Chrysler for third spot in the US market. And proximity to faster growing Asian economies, particularly China's, positions the country's businesses well to build their own growth.
Mitchell says that top Japanese manufacturers are "now leaner and more focused than many of their overseas rivals."
"Indeed there are a good many US and European companies filing for Chapter 11 or trying to address high debt levels and pension liabilities, where the best-run Japanese companies in contrast are grabbing market share."
"Bottom-up stock selection continues to be the key to success in Japan."
Long-term structural reforms remain a problem, but for now there are plenty of signs that investors will see good returns from the country, Mitchell adds.
The JPMorgan Fleming Japanese investment trust has returned about 9.7% over five years, according to Bloomberg data. This year its share price has recovered from a low of 116.75p to today's high of 211p. The discount has narrowed from about 20% to 8%.
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