Japan is still a good opportunity for patient investors
Profit margins in Japan are quietly surging. This is a phenomenon that we certainly have been seeing in the US for years, and incrementally in Europe. But, the rate of change in Japan is in fact, far better than the other two. Better yet, as the Wall Street Journal points out, with Net Margins at just about 6%, they have room for further improvement as they still lag these other developed markets.
Since Abenomics has begun, the productivity of working age population 25-54 year old has risen sharply, from 80% to more than 85%. But the biggest evidence is in the change in real GDP per working age adult. After years of lagging the US, it is now accelerating faster than the US in recent years.
While many markets are cheap relative to the US, the large majority of them have their own structural challenges. In Japan, we find a cheap market with some improving fundamentals.
Granted the Japanese economy is more export dependent than most, and thus any escalation in the trade tensions could likely create short term concerns. Our perspective on this is that it is mostly priced into the markets. At just over 12X earnings, as long as profit margins can continue their improvement we think that is a good place for patient investors.
A relevant recent reference from the WSJ.com: