Japanese stocks within reach of record highs, and yet inexpensive
(This Feb. 21 story has been corrected to fix the gender of the analyst in paragraph 2)
By Patturaja Murugaboopathy and Noriyuki Hirata
(Reuters) — As Japanese stocks approach record levels last seen in the 1989 bubble-era, valuation metrics suggest they are still far from overpriced compared to historic levels and global peers.
The Nikkei share average is up nearly 50% in the past year and closing in on its record high of 38,957.44 points touched on the final trading day of 1989.
Yet, on a popular price-to-earnings ratio metric, the MSCI Japan index's 12-month forward ratio stands at 14.1, below the MSCI World index's 17.4 and the MSCI United States index's 20.1.
«From a historical perspective, Japanese stocks at a forward price-to-earnings ratio of 15x do not look expensive versus other markets, especially at current interest rate levels,» said Miyuki Kashima, head of Japan investments at Fidelity International.
More importantly, Japanese stocks trade at a low price-to-book value, meaning the shares are underpriced relative to the value of assets on companies' balance sheets.
MSCI Japan's price-to-book ratio is 1.37, much lower than 4.72 recorded in 1989, when the market last hit these highs during Japan's asset price bubble.
The Nikkei's rally over the past year has been fuelled its cheapness, corporate governance reforms and steady buying by foreigners. It has also come after a long period of stagnation since the early 1990s as companies focused more on stability than growth.
The Tokyo Stock Exchange (TSE) has sought to get companies to change conservative accounting practices, by pushing for better governance, share buybacks, lower cross-holdings and increased dividends.
Within its Prime Market segment, which
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