Many value investors are debating the merits and drawbacks of investing in Japan. On the positive side, Japanese stock valuations are a fraction of their Asian / Western peers – the result of a 20 year bear market. On the negative side, Japan's unusual corporate governance culture means business ‘owners' are less likely to fully realise a company's intrinsic value. Retailer Shimachu shows the headwinds facing a value investor looking for Japanese bargains.
On 28/01/2011 15:10:51,
A very interesting piece! How do you weigh up the lack of shareholder focus against the valuation? If Shimachu traded at 0.2 times tangible book would this be cheap enough to offset? When does the balance sheet quality and valuation discount outweigh all the negatives?
On 31/01/2011 12:21:30,
I would be a buyer of Shimachu when the dividend yield is sufficiently large to provide an adequate return. Given the Japanese tradition of maintaining dividends I believe that Shimachu will continue to pay a dividend of Y35 per share. I would therefore be a buyer at a share price of Y500 giving me a 7% dividend yield.
On 05/02/2011 11:50:08,
I too found the piece interesting. I see where you're coming from, I really do. But I can't help feeling that the rest of the investment world shares your concerns. The contrarian in me feels that the upside-downside potential is more compelling in select Japanese 'net-net' stocks than is on offer in stocks elsewhere in the world.
On 07/02/2011 21:22:48,
On February 7th at 4pm the Columbia Law School has an event in the Jerome Greene Annex titled 'How to Improve Japanese Corporate Governance.'
Featuring: Nicholas Benes, Representative Director, The Board Director Training Institute of Japan; Chair, Growth Strategy Task Force; and Chair, FDI Committee, American Chamber of Commerce in Japan
Co-sponsor: Center for Japanese Legal Studies, Columbia Law School
On 22/03/2011 18:11:53,
Very interesting article. Whilst the contrarian in me gets excited at the sight of so many net-nets, I can see your point. I feel international investors such as myself are at risk of "mirror-imaging" when it comes to Japanese equities (i.e. thinking about what should happen if/when the Japanese eventually start to act like westerners in regards to capital allocation, etc). The trouble is that it is possible that they may never do this. Perhaps if we were able to "think like Japanese" we might conclude that these cheap valuations are illusory.