Japanese stocks have enjoyed re-rating, from trading at below 0.8 times P/B at the launch of Abenomics in early 2013 to 1.3 times currently. Morgan Stanley sees a further improvement and continues to target a mid-cycle ROE of 11% to 12% for 2025 and further valuation re-rating. “At the stock level, we continue to focus on capital management and self-help stories alongside productivity and innovation leaders.”
Even as Japan’s stock market hits a 33-year high, interest in it has continued growing instead of waning as investors globally forget about the country’s “lost decades”. Morgan Stanley is the “most bullish” on Japan among the major equities markets. “We believe Japan value stocks with high-quality balance sheets could benefit and turn into a prolonged outperformance,” gushes the team in their June 4 report, where they raised their June 2024 target for the Tokyo Stock Price Index (Topix) by 18% to 2,400 points, suggesting a further upside of 13%.
“Our long-standing theme of ROE improvement and productivity and innovation resurgence increasingly resonates with investors in the ongoing multipolar world era,” says the US bank, adding that Japan’s trailing ROE now stands at 9.5% and has been moving towards global peers since the “Abenomics” suite of reforms kicked off under the former prime minister in 2013, leading to a “surprisingly strong” EPS CAGR of 11% over this past decade.
