The gap in capital efficiency between Japanese and overseas companies is widening. Japan has been on a recovery trend due to the normalization of the economy from the new coronavirus disease, but differences in industrial structure and cost response are becoming more important. There is also concern that if the disparity widens in the wake of the Ukraine crisis, it will lead to the departure of Japanese stocks by foreigners.
The difference in return on equity (ROE, net income / return on equity) between TOPIX in October-December 2021 and MSCI World, an index representing developed countries, is minus 7.1 (Japan 9%, developed countries 16%). , It is the largest since minus 8.3 in October-December 2011 before Abenomics. The difference in ROE has been consistently widening for 21 years, hitting the bottom of minus 3 (4.7%, 7.8%) in October-December 2008.
Hiroyuki Meno, a senior quants analyst at Daiwa Securities, believes that differences in the industrial structure between Japan and the United States are one of the reasons for the sluggish growth of ROE in Japan. Even if the profits of the traditional manufacturing industry recover, Japan said, “There are no promising investment destinations and cash will accumulate at hand, so ROE will not rise at the same momentum as the United States,” and expected that ROE improvement would be difficult to continue. .. On the other hand, US growth industries such as those related to digital transformation (DX) are expected to continue to obtain high investment returns if they reinvest the profits they earn.
While US companies, which have strengths in such DX, are rapidly increasing their profits, Japan, which has a high weight in the manufacturing industry, is beginning to weigh on the increase in costs since last year.New York crude oil futures have been on the market for the first time in almost 14 years since Russia invaded Ukraine in late February.It rose to a high price.
Yasuhiko Hirakawa, General Manager of Rakuten Investment Management, Inc.’s Second Management Department, pointed out that “US companies are immediately passing on the rise in raw material and distribution costs to selling prices, and profit margins are improving.” On the other hand, Japan has a deep-rooted deflationary constitution, “it cannot sufficiently absorb high costs and the growth rate of profit growth is low.” It will be 6-9 months after the further rise in raw material prices after the Ukrainian crisis will have a full-scale impact, and it is predicted that “it will affect the deterioration of Japan’s margins in the latter half of 2010. The ROE gap is likely to widen further.” ..
If the ROE gap widens next year, “there is no need for foreigners to actively prefer and buy Japanese stocks. If you have a few stocks, Japanese stocks may be enough,” Hirakawa said. Foreign investors who place importance on ROE tend to link the difference between the inside and outside of ROE with the trend of buying and selling Japanese stocks in kind. In the phase of widening disparity after 2016, it is generally a net-selling stance. In December of last year, when the disparity reached its largest level in 10 years, it was the largest net sales amount in one year and three months on a monthly basis.