Active Investing in Japan

It has been an interesting trading day thus far in Japan. Stocks have moved triple-digits up and down, including a 350 point surge from the day’s low, all to finish the morning session up a modest 30 points. During that time, the Nikkei 225 fell as low as 7,486, taking it to a 26-year low — forget about the post-bubble trough! Initial selling was obviously induced by futures trading, in addition to media reports about banks needing to raise capital. continue reading…

December Nikkei 225 futures trading in Singapore opened at 7,480, off a little more than 2%. That’s right about where the Osaka futures settled on Friday at 7,470. In Chicago, the close was a bit more optimistic at 7,550. At any rate, at these levels, if the benchmark N225 trades in-line, we’ll be at a new post-bubble low. Sad, but true. For a comparison of various market and other related metrics see: Nikkei and TOPIX, then and now.

After the market close on Friday, the Nikkei published a table showing various metrics of such things as where the Nikkei 225, TOPIX-1, yen, and JGBs are trading now versus 5 1/2 years ago (April 28, 2003) when the N225 hit a post-bubble trough (note we’re about 40 points away from that bottom and early futures trading doesn’t bode well). Following is a summary and additional detail to some of the metrics:

1. TOPIX-1 is actually 4% above where it was on 4/28/03. However, one key difference is the index trades at less than book value (0.97) versus 1.2x then. Another major difference: trading at 11.6x forward earnings now vs. 53.7x then! Forward dividend yield: 2.7% vs. 1.2%. Also, trading volume and turnover are both up more than 3.5x.

2. The yen, most recently at around 95 per US$, has appreciated some 20%. Against the euro, the upside is about half that amount.

3. Long-term JGB yield of 1.5% now vs. 0.6% then. (That’s right. That low and again with the dividend yield of TOPIX-1 far higher. We know what went on to happen by late ‘05.)

4. The Nikkei threw in Sony (JP: 6758) (SNE: 37.61 +0.72%), whose downward revised earnings forecast ignited a sell-off on Friday (see here). Sony’s ordinaries are down 27.5% compared to 5 1/2 years ago. No near or mid-term relief in sight. As I explained last Friday, concerning the sell-off of “exporters,” it wasn’t a secret that demand has soured and forex projections are way out of whack.

FD: No position in Sony.