Japanese Stocks Trading Below Fair Value, Smithers Says

Japanese stocks are a better value than U.S. equities and will extend gains even without further weakness in the yen, according to advisory firm Smithers & Co.

Company profits in the financial year starting in April will be “sharply higher,” Andrew Smithers, chairman of London- based Smithers & Co., which provides advice on international asset allocation, wrote in a research note dated yesterday.

The Nikkei 225 Stock Average (NKY) traded at 10,937.62 as of 12:05 p.m. in Tokyo, poised for its highest closing level since April 2010. The broader Topix Index advanced 1.2 percent.

Japanese shares of non-financial companies “are probably selling below fair value,” Smithers said. “Profits are likely to be poor in the six months to March, but to bounce back thereafter. We expect the stock market to respond to the improved short-term outlook.”

Earnings per share on the Topix will climb 56 percent in the next year, according to estimates compiled by Bloomberg. That compares with a 13 percent increase for the Standard & Poor’s 500 Index and 27 percent for the Shanghai Composite Index, the data show.

The Topix capped a nine-week advance, its longest weekly winning streak since 1989 on Jan. 11, on Jan. 11 when the Cabinet approved a 10.3 trillion yen stimulus package. Goldman Sachs Group Inc., Bank of America Corp. and Nomura Holdings Inc. are expecting Japanese stocks to extend gains as added economic stimulus boosts earnings. The gauge is trading at 1.08 times book value, compared with 2.20 for the Standard & Poor’s 500 Index and 1.59 for the Stoxx Europe 600 Index.

To contact the reporters on this story: Adam Haigh in Sydney at ahaigh1@bloomberg.net; Anna Kitanaka in Tokyo at akitanaka@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

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