Value Investing

Andrew Smithers: Valuing Japanese Shares – Part One

Valuing Japanese Shares – Part One by Andrew Smithers, FT

In two earlier blogs I explained why the cyclically adjusted price earnings yield (Cape) could not sensibly be applied to valuing Japanese shares. (One of several reasons is that Cape is only valid if profit margins are mean reverting over relatively short periods of time, such as 10 years or so, and this has not been the case in Japan.) This does not mean that they cannot be valued by other means. In this and the next blog I attempt one possible way to do this.

Tables one and two (below) compare the published data of listed Japanese and US non-financial companies and the resulting ratios derived from them at current market prices.

Japanese shares

Japanese shares

It appears that US companies are much more profitable than Japanese ones. Comparisons made over previous years also show a similar disparity. If these figures are accepted as providing a fair comparison, it would be reasonable to claim that US companies should be valued much more highly than Japanese ones.


Japanese shares

See full via FT