Japanese equities preferred to eurozone - NN IP

Added 23rd September 2016

Japanese equities could be preferable to eurozone equities due to higher corporate profitability and greater political certainty, said NN Investment Partners.

Japanese equities preferred to eurozone - NN IP

The asset manager pointed to the fact that eurozone corporate profitability has been declining in recent years, while it has been rising in Japan since 2011, and is in fact close to its 15-year high.

But even more importantly, the return on assets in Japan (3.1%) is now higher than the cost of capital (2.9%), whereas that is not the case in the eurozone (2.2% versus 2.4%).

“In Japan we see less political risk and better profitability than in the eurozone. On top of that, on a price to book and a PE-metric, Japanese equities are 20% cheaper than eurozone equities,” said Patrick Moonen, principal strategist multi-asset.

“On the other hand, eurozone equities offer a higher dividend yield, which in current times of yield scarcity could be an asset,” he added.

Underleveraged

In NN IP’s view, Japanese companies are underleveraged and have room to optimise their balance sheets and hence cut their weighted average cost of capital. “This could be accomplished by, for example, increasing dividend payments or by buying back shares financed with debt,” said the firm.

The equity to total assets ratio for the eurozone is 29.6%, while in Japan this ratio stands at 39.2% and has been rising over the past years.

“Political uncertainty in the eurozone is higher, given elections in the Netherlands, France, Germany and potentially in Spain over the next 12 months, a referendum in Italy in November on constitutional reforms, fading unity in the European Union and the Brexit-discussions set to be a long-lasting process that will impact the UK and the rest of Europe,” said NN IP.

However, said Moonen, in 12-months’ time the political concerns could prove to be overestimated. “For markets, less bad is often good enough. So we stick only to a small underweight eurozone and a small overweight Japan.”

Visitor's Comments Add your comment

Add Your Comment

We won't publish your address

Features

US equities: If you can’t beat them, join them

US equities: If you can’t beat them, join them...

European investors have been dismissing US equities as too expensive for a couple of years. But as the S&P 500 continues to outperform other equity markets, appetite for the asset class is again on the...

Directories

Ashburton International
Ashburton International

Ashburton Investments is a new generation investment...

Tweets

Events

Future Advisory Forum Hong Kong 2016
Future Advisory Forum Hong Kong 2016

Tuesday 4th October 2016

Hong Kong

Future Advisory Forum Singapore 2016
Future Advisory Forum Singapore 2016

Thursday 6th October 2016

Singapore

Offshore Bond Workshop Manchester 2016
Offshore Bond Workshop Manchester 2016

12th October 2016
The Midland, Manchester

Future Advisory Forum Cape Town 2016
Future Advisory Forum Cape Town 2016

Tuesday 18th October
The Vineyard, Cape Town

Investment Strategy

Sponsored Content

OTHER STORIES FROM LAST WORD...