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Japan – langfristige Werthaltigkeit, mittelfristige Investmentchance

5. Februar 2013

Liebe LeserInnen,

in den letzten Tagen habe ich mich intensiv mit Japan als potenzieller Investmentchance beschäftigt und bin zu dem Schluss gekommen, dass es sich hierbei um eine auf die mittlere Sicht sehr attraktive Investitionsmöglichkeit handelt. Im Anhang füge ich einen sehr gut zu lesenden Artikel meines alten Arbeitgebers (Sloane Robinson Investment Management, London, UK) bei, der sich ausführlich mit den Chancen – aber auch mit den Risiken – für den japanischen Aktienmarkt befasst hat.

Zwar hat der japanische Marktindex TOPIX (Erklärung siehe weiter unten) in den letzten zwölf Monaten schon um über 26 % zugelegt. Ich denke aber, dass mittelfristig deutlich höhere Kurse möglich sind. Sloane Robinson zeigen auf, dass 1200 Punkte erreichbar scheinen.

Für interessierte Investoren gilt es jetzt nich auf einmal voll in den japanischen Markt zu investieren, sondern immer wieder kleinere Positionen an schwachen Tagen oder nach kleineren Korrekturen aufzubauen. Nachstehend sehen Sie die Kursentwicklung des TOPIX über die letzten 20 Jahre.

Quelle: OnVista

Quelle: OnVista

TOPIX (Quelle: Wikipedia): TOPIX steht für Tōkyō Stock Price Index und ist neben dem Nikkei 225 ein Kursindex der Tokioter Börse. Berechnet wird der TOPIX seit 1988. Er enthält alle japanischen Aktien, welche im amtlichen Handel zugelassen sind. Die Gewichtung der einzelnen Unternehmen im Index erfolgt anhand der Marktkapitalisierung. Gegenwärtig (25. Juli 2010) setzt sich der Index aus 1672 Aktien zusammen. Wegen dieser hohen Zahl an vertretenen Unternehmen wird der Topix als aussagekräftiger für den Zustand der japanischen Wirtschaft angesehen als der Nikkei.

Anhang: Artikel von Sloane Robinson Investment Management (in englischer Sprache):

Japan – Long term value : Medium term opportunity

February 2013

Japanese shares are down some 70% from their highs in the first morning of trading in 1990. Bear markets are supposed to be short. However, the combination of exceptionally high stock market valuations during the late 1980’s and two decades of deleveraging/deflation have brought about one of the longest equity market downturns in modern times. The bear market was, for shareholders, the worst to endure because Japanese corporate management often seemed deaf to investors’ concerns – management seemed unwilling or unable to boost the returns on capital employed.

Now, three key variables – valuations, profitability and monetary policy – are much more supportive of equity prices and have probably signaled the end of the secular bear market. Of course, experienced investors will have heard a bullish call to arms before and there have been many false alarms during the course of the bear market. However, we find the evidence in support of a major reversal in the equity market trend to be persuasive.

Valuations

The chart below provides a snapshot of valuations across various regions. This is a fairly typical assessment showing that Japanese equities are inexpensive on book value comparisons, trade at close to 2008/9 trough valuations and are even beginning to stand comparison on a dividend yield basis.

Bewertung

Japanese equities are likely to produce the strongest earnings per share growth this year (fiscal), but the problem of low profitability apparently continues (as we discuss below). Goldman Sachs are forecasting a 60%+ profits recovery from the aftermath of the Tohoku earthquake and Thai floods which, on their estimates, would take Japan’s return-on-equity (ROE) to a relatively meagre 8.2% even after accounting for recent yen weakness.

We further note that Japanese equities have now underperformed the local bond market (ten-year JGBs) for more than 50 years. However, the yield on the Topix index is now roughly three times that of an average duration domestic bond portfolio. In our opinion, this creates a valuation scenario that is much more compelling for equities.

Profitability

There are a range of reasons why the recovery in Japanese profitability has likely been underestimated.

Firstly, Japanese manufacturing and service companies have had a torrid time over the past five years. The combination of the global financial crisis, the Tohoku earthquake, Thai floods and the euro crisis brought about a savage fall in top line revenues – Citibank estimate Topix 500 index sales fell more than 20% peak to trough. Many large exporting companies – for example, Canon and Toyota – still record revenues down 20%-30% from their highs. Companies have responded to these pressures by reducing both fixed and variable costs aggressively, at the same time as capacity utilisation has fallen sharply. As a result, companies’ breakeven levels of sales have reduced enabling them to generate higher profits from the same level of revenues.

Profitabilität

The above charts indicate the trend in fixed and variable cost reductions for leading Japanese companies with at least ¥1 billion in capital. The result of these reductions has been to increase operating profit margins, even at the current lower levels of capacity utilisation, by between 1.4% and 1.75%. This has two important implications; i) Japanese corporates remained profitable in 2009 at levels of capacity utilisation which in prior cycles would have spelled losses, and ii) Japanese margins and ROEs are even more heavily geared to top line revenue growth than in some previous business expansions.

Secondly, a weaker yen, especially against other Asian currencies – notably the Korean won – would provide (and recently has been) an obvious support to Japanese profit margins. It is noteworthy that in the autumn of 2011, the Ministry of Finance (MoF) inaugurated its first large scale foreign exchange intervention against the yen for more than five years and repeated this during the first half of 2012.

Thirdly, it appears that the deleveraging of Japanese corporates is ending. In prior cycles on-going debt repayment capped any ROE improvement.

Fourthly, and arguably the most important reason, is the evident changes in Japanese corporate culture. In particular, more large companies are targeting higher returns on capital employed. This approach appears to us to have been led by Japan’s trading companies (Mitsubishi Corp, Mitsui & Co) – arguably the most cosmopolitan of Japanese corporates – and by erstwhile “mavericks” such as Nidec. It is also certainly true that companies such as Fanuc, Keyence and Kyocera have generated high margins without necessarily emphasising financial targets. But it is of enormous significance that old style Japan companies such as Hitachi and Nissan now place financial objectives at the head of their medium term strategies. Canon has also announced a further substantial round of cost reductions, as has Toyota – the latter aiming for cost savings equal to prior record operating profits. Japan Tobacco states it intends to buy back the government’s stake, thereby boosting returns on capital employed, in order to compete with foreign brands and even Mitsubishi Heavy Industries (MHI), which used to epitomise Japan’s casual approach to shareholder returns, now has a modest ROE target of 8%.

The actual and potential recovery in Japanese profitability is particularly well illustrated in the banking sector. For the past two decades the major city banks have been bedevilled by deleveraging (bank assets have fallen by more than ¥100 trillion since 1991), credit costs and equity issues. This is no longer the case. The three largest city banks will likely earn an average ROE of 8.5% in the year to March 2013, pay enhanced dividends and are without threat of equity issuance (some commentators expect MUFJ and SMFG to buy back shares in the new financial year). The fact is that these banks, unlike their counterparts in many areas in the West, are able to support a recovery in Japan’s credit cycle and the management of SMFG and MUFJ certainly say that they are keen to expand their balance sheets.

Monetary Policy

The extent to which Japanese banks can begin to expand their balance sheets depends to a large degree on the stance taken by the Bank of Japan (BoJ). Other investors will have their own views on the BoJ’s policy, but it seems very clear to us that Governor Shirakawa has become completely isolated in his view that the BoJ is, in practice, powerless to reverse deflation. The LDP’s convincing electoral victory in December was fought principally on the need to reflate the economy following more than twenty years of flat nominal incomes. Not only does the Japanese electorate share Prime Minister Abe-san’s goal, but he is supported by the MoF and presumably shortly by a much more dovish new BoJ Governor. This would be the first time in twenty five years that the Government, the BoJ and MoF have their key policy objectives aligned.

It is increasingly evident that the bias is already towards a much more accommodative policy that reverses two decades of high “real” interest rates. The BoJ has announced a 2% CPI target and boosted its asset purchase programme and current account balances. This bias towards monetary accommodation has been forcefully underpinned by aggressive MoF led foreign exchange intervention against the yen. This has helped foster a sharp depreciation in the yen.

The market is beginning to sense that Japan is moving away from deflation. The chart below shows that the “break even” level for 7-year Japanese inflation linked government debt is now consistent with a mild increase in inflationary expectations.

Inflation

Profitability and the Equity Market

The chart below illustrates that over the past decade the ROE of the Topix has been an important contributor to the trend in that Index. For the reasons given above, we expect the ROE of the Topix index to equal and then exceed those of the 2003-2007 period. The preconditions for this are modest monetary accommodation, modest overseas growth and modest yen weakness. Japanese profitability is highly leveraged to each of these outcomes but none appear to us to be adequately priced into the equity market.

RoE

An entirely separate reason for expecting Japanese profits to rise comes from the notion that Japanese profits are underestimated because Japanese depreciation is currently overstated. It has been noted by some commentators that cash flow per share to Japanese companies is generally much higher than in the US. In fact, one commentator estimates that an investor who buys a portfolio of Japanese non-financials on the same PE multiple as a US portfolio will be buying 84% more cash flow. The principal cause of this difference is depreciation.

The chart below suggests that depreciation alone can now finance all of Japanese non-financial companies’ new capex. If Japanese companies’ depreciation has been overstated in the past then current book values are likely too low.

Investments Capex

This analysis also points to a further source of profitability gains. It would appear to us that whilst Japanese companies over-depreciate their assets US quoted companies under-depreciate theirs. Therefore, if the new LDP led government implement what has been suggested (i.e. reducing Japanese corporate tax rates in exchange for reducing capital and other allowances) then there is a good chance that the ROE for the Topix index will rival that of the S&P 500 in a couple of year’s time. We rate the chances of this wholly sensible policy being implemented at approximately 40%.

Risks

There are some important risks to our view that the medium term trend in Japanese profitability is underestimated.

Firstly, the Japanese authorities could implement fiscal consolidation alongside reflation – which to a certain extent is a risk shared with investors in the US market. However, the price of Japanese equities is the mirror image to those in the US – they are priced at high discount rates to historically depressed margins whereas the converse is true in the US.

Secondly, the age old concern about poor Japanese corporate governance continues. However, now that leading Japanese companies are, increasingly, emphasising profits over market share and banks are willing to finance an increase in their own and their borrowers’ balance sheets this risk seems to us to be less applicable. It is nevertheless very important that the Japanese authorities are not deflected from the need to reflate.

Thirdly, the relative absence of local financial sector participation in the current rally. To a large degree this reflects the fact that Japanese pension funds are liability management constrained against increasing their very modest equity weightings. We understand it would take a rise in JGB yields above 2% to significantly change this asset allocation.

Investment Outlook

If we are correct that Japanese profitability trends towards an ROE of 10% or higher over the next eighteen months then Japanese shares are certainly attractively valued. Such profitability would also imply strong earnings growth this year in the context of moderate global growth. For example, should investors become comfortable with the notion of higher Japanese profitability, a 10% ROE could certainly, in our view, be consistent with a 1.5x price-to-book multiple on the Topix index, implying a level of 1200.

Our dedicated Japan portfolio1 is aiming to take advantage of this opportunity – and deliver further upon the strong returns of 2012 – through a fully invested position whilst adopting a strategic hedge against yen weakness. We are likely to retain a balanced exposure between manufacturing exporting companies and domestic reflation beneficiaries. The manufacturing exporters are attractive NOT only because of gearing to a modestly weaker yen, but companies such as Hitachi, MHI and Toyota have the clearest and most credible cost reduction programmes in place. We are also invested in the pioneers of improved Japanese profitability – such as the trading companies which have very low valuation multiples notwithstanding them achieving more than five years of double digit ROEs – and superbly managed companies such as Nitto Denko. Our exposure to the domestic sectors of the market includes the city banks, property and housing companies and REITS. We do not emphasise small companies per se, but with almost 60% of the second section of the market (TSE2) trading at or below book there is little shortage of attractive candidates to consider.

Japan has been exerting a growing influence in the positioning of our more international mandates, reflecting what we see as one of the most exciting and strategic investment opportunities around.

Japan has been a disappointing and frustrating equity market for two decades. Initially this reflected exceptionally high valuations, as well as poor profitability. Both of these have now changed. We are confident that this time it is different.

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