Trading volumes in Japanese equities have returned to levels last seen about a month after a record earthquake on March 11, as the weakening yen and low price-to- book valuations lure foreign investors.
The CHART OF THE DAY tracks how the 30-day moving average of all share transactions on the Tokyo Stock Exchange has rebounded after total volume hit the lowest level since 2008 in December. The lower panel shows that the increase in volumes has coincided with a rally in the Topix Index and the longest run of net foreign buying since May last year, according to data compiled by Bloomberg.
“Foreigners are buying because recently Japanese stocks have stood out as laggards amid a global rally and as the yen has started to weaken,” said Kiyoshi Ishigane, a Tokyo-based strategist at Mitsubishi UFJ Asset Management Co., which oversees about $84 billion. “Japanese stocks are undervalued on price-to-book levels and the very big yield gap between dividends and government bonds.”
Japanese stocks largely missed out on the global bull market that has seen the Standard & Poor’s 500 Index double in value since hitting a low on March 9, 2009. The Topix Index has added 19 percent from its 2009 low, leaving companies trading at just 1.02 times the value of their net assets. The MSCI All- Country World Index (MXAP) trades at 1.76 times book value.
The yen has dropped about 8 percent since hitting a record high against the U.S. dollar in October. A weaker yen benefits Japanese equities by boosting the earnings outlook for the country’s exporters while at the same time making companies’ shares relatively cheaper for foreigners to purchase.
Topix Index companies offer a dividend yield of 2.27 percent, more than double the 0.993 percent of Japanese 10-year government bonds, according to data compiled by Bloomberg.
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