TOKYO—Japanese stocks rose to a 15-year high Thursday, as investors take a renewed interest in companies that have shifted their focus back to growth and efficiency.
The Nikkei Stock Average gained 0.4% to 18264.79, the highest since May 2000.
There are signs that Japanese companies, ranging from Canon Inc. to Sony Corp. , are starting to tap into their large cash piles, reinforcing their core businesses and buying out firms for expansion. These companies finally seem to be leaving behind the uncertainty that followed the 2008 global financial crisis, and the aftermath of the March 2011 earthquake, tsunami, and nuclear disasters.
“We are finding a lot more growth opportunities (in Japan) -- good companies that are executing well in this environment,” said Nick Niziolek, who co-manages an $800 million international growth fund at Illinois-based Calamos Investments LLC. The fund, which had very little exposure to Japan for years, turned overweight on Japan in October for the first time since 2007, Mr. Niziolek said.
Domestic firms are also getting a tailwind from Prime Minister Shinzo Abe ’s economic policies, which have weakened the yen and generated mild inflation. The yen has lost about a third of its value since late 2012 when Mr. Abe started campaigning for the nation’s leadership.
Notable blue chips rose to multiyear highs Thursday. Toyota Motor Corp. hit an eight-year high. Industrial robot-maker Fanuc Corp. climbed to a record high.
How far the rally will go is unclear. From late 1998 to early 2000, Japanese stocks soared as the U.S. dot-com bubble reached Japanese shores, but then crashed when the bubble burst. From 2005 to 2007, the prospect of greater demand from fast-growing economies like China lifted Japanese stocks, especially resources-related ones, until Japan was engulfed by the global financial crisis.
Questions remain over the longer-term viability of the Japanese equity market. The shrinking and aging population is a risk to economic growth. The government’s precarious debt situation is keeping some investors away from Japan. The evidence for a broad economic recovery throughout the country hasn’t been persuasive.
While trust banks that manage money for pension funds emerged as the big force last year, buying ¥2.8 trillion ($24 billion) of Japanese stocks, purchases from foreigners subsided to ¥853 billion, according to the Tokyo Stock Exchange. Retail investors were big sellers, unloading ¥3.6 trillion of Japanese stocks.
Still, some investors said what is happening is reminiscent of the U.S. in the 1980s, when conservative management with heavy balance sheets shifted their focus to shareholder returns.
Earlier in February, cash-rich Canon announced it will buy Axis AB, a Swedish network video solutions provider, for around $2.8 billion. Electronics and entertainment giant Sony said Wednesday it would spin off its audio and video units to focus on entertainment and image-sensor businesses. Fanuc said Monday it would invest more than $1 billion in new factories and research facilities at home.
Since late 2012, Sony shares have nearly quadrupled. Canon shares have gained 56%.
“Japanese companies now are much more aware of global competition, are much more aware of giving shareholders better returns,” said Richard Whittall, who is based in Singapore and manages a Japan-focused fund at Alltus Capital of the U.K. “At the micro level, many big changes are taking place,” he said, with Japanese companies “much more pragmatic” about doing share buybacks and mergers and acquisitions.
Chicago-based portfolio manager Drew Edwards at Advisory Research, with about $600 million invested in Japanese equities, said some companies had started using capital more effectively even before the start of “Abenomics” two years ago. But the prime minister’s policies gave them a push by putting a priority on corporate governance to encourage better use of cash. “Hats off to the Abe administration,” Mr. Edwards said. Japan is Overweight in Advisory Research’s global portfolios.
Valuations on Japanese stocks have been rising, but not to the heights of the tech bubble of early 2000. And returns are decent. At the end of March 2000, shares of SoftBank Corp. , one of the best performing stocks at the time, were trading at 414 times the previous 12 months of earnings, according to S&P Capital IQ. Shares of a current top performer, Japan Airport Terminal Co. , traded at 77 times earnings at the end of 2014.
Japanese stocks returned 9.8% in 2014, compared with a 10.4% return for developed markets overall assuming dividends fully reinvested, according to MSCI Inc. ’s world index for developed markets.
Alltus’s Mr. Whittall said a long/short fund he manages has invested in Syuppin Co., an online retailer for second-hand cameras and watches, which will likely benefit from growing e-commerce. The outlook for regional retailers worries him, however, as online shopping spreads and local populations age and shrink.
Yet Robert Sharpe, who manages a $30 million international value fund at Milwaukee-based Heartland Advisors, said there are plenty of opportunities in Japan.
“It’s just that we need to go out and find them,” he said, citing Takamatsu Construction Group Co. , which has been using its cash pile for acquisitions.
Japan Stocks Hit 15-Year High - WSJ
The Nikkei Stock Average gained 0.4% to 18264.79, the highest since May 2000.
There are signs that Japanese companies, ranging from Canon Inc. to Sony Corp. , are starting to tap into their large cash piles, reinforcing their core businesses and buying out firms for expansion. These companies finally seem to be leaving behind the uncertainty that followed the 2008 global financial crisis, and the aftermath of the March 2011 earthquake, tsunami, and nuclear disasters.
“We are finding a lot more growth opportunities (in Japan) -- good companies that are executing well in this environment,” said Nick Niziolek, who co-manages an $800 million international growth fund at Illinois-based Calamos Investments LLC. The fund, which had very little exposure to Japan for years, turned overweight on Japan in October for the first time since 2007, Mr. Niziolek said.
Domestic firms are also getting a tailwind from Prime Minister Shinzo Abe ’s economic policies, which have weakened the yen and generated mild inflation. The yen has lost about a third of its value since late 2012 when Mr. Abe started campaigning for the nation’s leadership.
Notable blue chips rose to multiyear highs Thursday. Toyota Motor Corp. hit an eight-year high. Industrial robot-maker Fanuc Corp. climbed to a record high.
How far the rally will go is unclear. From late 1998 to early 2000, Japanese stocks soared as the U.S. dot-com bubble reached Japanese shores, but then crashed when the bubble burst. From 2005 to 2007, the prospect of greater demand from fast-growing economies like China lifted Japanese stocks, especially resources-related ones, until Japan was engulfed by the global financial crisis.
Questions remain over the longer-term viability of the Japanese equity market. The shrinking and aging population is a risk to economic growth. The government’s precarious debt situation is keeping some investors away from Japan. The evidence for a broad economic recovery throughout the country hasn’t been persuasive.
While trust banks that manage money for pension funds emerged as the big force last year, buying ¥2.8 trillion ($24 billion) of Japanese stocks, purchases from foreigners subsided to ¥853 billion, according to the Tokyo Stock Exchange. Retail investors were big sellers, unloading ¥3.6 trillion of Japanese stocks.
Still, some investors said what is happening is reminiscent of the U.S. in the 1980s, when conservative management with heavy balance sheets shifted their focus to shareholder returns.
Earlier in February, cash-rich Canon announced it will buy Axis AB, a Swedish network video solutions provider, for around $2.8 billion. Electronics and entertainment giant Sony said Wednesday it would spin off its audio and video units to focus on entertainment and image-sensor businesses. Fanuc said Monday it would invest more than $1 billion in new factories and research facilities at home.
Since late 2012, Sony shares have nearly quadrupled. Canon shares have gained 56%.
“Japanese companies now are much more aware of global competition, are much more aware of giving shareholders better returns,” said Richard Whittall, who is based in Singapore and manages a Japan-focused fund at Alltus Capital of the U.K. “At the micro level, many big changes are taking place,” he said, with Japanese companies “much more pragmatic” about doing share buybacks and mergers and acquisitions.
Chicago-based portfolio manager Drew Edwards at Advisory Research, with about $600 million invested in Japanese equities, said some companies had started using capital more effectively even before the start of “Abenomics” two years ago. But the prime minister’s policies gave them a push by putting a priority on corporate governance to encourage better use of cash. “Hats off to the Abe administration,” Mr. Edwards said. Japan is Overweight in Advisory Research’s global portfolios.
Valuations on Japanese stocks have been rising, but not to the heights of the tech bubble of early 2000. And returns are decent. At the end of March 2000, shares of SoftBank Corp. , one of the best performing stocks at the time, were trading at 414 times the previous 12 months of earnings, according to S&P Capital IQ. Shares of a current top performer, Japan Airport Terminal Co. , traded at 77 times earnings at the end of 2014.
Japanese stocks returned 9.8% in 2014, compared with a 10.4% return for developed markets overall assuming dividends fully reinvested, according to MSCI Inc. ’s world index for developed markets.
Alltus’s Mr. Whittall said a long/short fund he manages has invested in Syuppin Co., an online retailer for second-hand cameras and watches, which will likely benefit from growing e-commerce. The outlook for regional retailers worries him, however, as online shopping spreads and local populations age and shrink.
Yet Robert Sharpe, who manages a $30 million international value fund at Milwaukee-based Heartland Advisors, said there are plenty of opportunities in Japan.
“It’s just that we need to go out and find them,” he said, citing Takamatsu Construction Group Co. , which has been using its cash pile for acquisitions.
Japan Stocks Hit 15-Year High - WSJ
