Tokyo stock market dwarfs the four big tech giants


Asia Pacific Stock Market Update

Although most parts of Japan Olympic Games, Heat and rampage Delta variant, Some people sweat when the two lines on the market screen cross.

Summer has passed, and Japan’s chagrin is that the total value of the four US technology companies exceeds the entire TOSE index, or all 2,187 companies on the main board of the Tokyo Stock Exchange.

TSE has performed well, and the quartet behind this change is well known: Apple, Alphabet (Google), Amazon, and Facebook have a combined market value of more than $7 trillion, or mistake, Habitually laugh at any juxtaposition with other companies and markets. The combined value of Apple and Facebook exceeds the FTSE Index; Amazon alone is greater than the Dax Index of Germany as a whole. Under this circumstance, in the calculation of global portfolio management, Topix of US$6.8 trillion is just the latest international benchmark from GAFA’s penumbra to Whole Foods.

Nonetheless, surpassing Tokyo still has epoch-making significance—especially for those who have had to argue more creatively about the relevance of Japanese investment in the post-Abenomics era—to gather in a situation where the center of gravity seems to be so decisive elsewhere. Decide for yourself what persuasion might work. In the late 1980s, TSE-listed companies accounted for about half of the global market value, and the Bank of Japan casually surpassed Exxon Mobil and General Electric, which made people’s fear of being marginalized gradually disappeared.

Although the current performance of the Japanese stock market may seem healthy on the surface (the Topix Index closed at a five-month high on Wednesday), the performance of the MSCI Japan Index this year lags the United States and Europe by 19 and 14 percentage points, respectively—or, As the brokerage company Jefferies said, it is close to the worst record in the past 20 years.

Even without this evidence, many observers still believe that an important group in the Japanese corporate roster is seriously underestimated compared to its global counterparts. They can see the huge gap between earnings and valuations, and are increasingly uncertain about what narrative or catalyst can continue to cause the gap to shrink, let alone disappear.

One theory is that the sudden emergence of new political risks in the Chinese stock market that may overwhelm valuations may cause global portfolio funds to shift from this threat to Japan’s apparent earnings stability.

At the same time, despite the high level of vaccination, Japan’s prospects for a post-Covid rebound are not sufficiently entrenched and become a clear “buy” signal.

Analysts pointed out that nearly 41% of Topix stocks are trading at prices lower than pre-Covid levels, compared to 17% in the S&P 500. The spectacle of the GAFA/Topix crossover also coincides with the natural attack of the blues after the Olympics: the Olympics did not bring the expected economic prosperity and may prolong the economic squeeze of the pandemic. This situation makes Prime Minister Yoshihide Suga look weak, and his political future and reform agenda are also doubtful.

Jefferies strategist Shrikant Kale believes that all this pessimism has masked the many signs of the Japanese stock market (partly due to poor performance this year), which are ready to roar back between now and the end of the year.

Seasonal factors, including the continued weakening of the yen and the rise in U.S. 10-year Treasury yields between September and December, will be a strong driving force proven by history. Kale said that in addition to these positive factors, the increasing proportion of Japanese adults who are fully vaccinated – despite a late start, it currently exceeds 43% – should trigger a rebound in so-called “returning stocks”, and these stocks It has been dominant in the US market in recent months.

Once momentum is gained, global investors may carefully study Japan’s fundamentals, according to Kale, including its leading global corporate profitability rebound and Japan’s impressive quarterly earnings in the three months to June. A record 76% of the Top Securities Company exceeded consensus expectations.

The two valuation lines—four US GAFA stocks and the Topix Index—may permanently cross. Many people would think that the distortion lies in the extreme valuation growth of the American Behemoth: For investors, the more directly profitable distortion may lie in the undervaluation that drives its rise.

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