Japanese stocks are showing surprising strength even as the yen has strengthened in recent trading. The psychologically important level of 18,000 for the Nikkei 225 is within reach tomorrow. Let's take a look at where valuations stand.
In Thursday trading, the N225 gained 0.81% to 17,897, trading as high as 17,911 and as low as 17,815.
According to the Nikkei Shimbun, the 225 components of the Nikkei Stock Average have the following valuations:
- Price-to-book: 2.24
- P/E (forward): 20.98
- P/E (trailing): 22.76
- Dividend yield (forward): 0.97%
- Dividend yield (trailing): 0.88%
Given the recent run with the N225 now approaching 18,000, even the forward P/E is above 20x (just under 21). Unsurprisingly, dividend yield is under 1% both on a forward and trailing basis.
S&P data for the S&P Japan 500 (as of 1/31/2007) shows a trailing P/E of 21.77, forward P/E of 20.5, P/B of 2.1 and dividend yield of 1.1%. This index covers 88% of the market and includes stocks from Japan's three largest exchanges: Tokyo, Osaka and Jasdaq. (Source: standardandpoors.com)
On a comparative basis, but with data as of Q3-2006, the U.S. S&P 500 components have an average P/E of 17, P/B of 2.72, and dividend yield of 1.81%.
Nikkei 225 and S&P 500 1-year chart (as of 2/14):
Disclosure: The author owns iShares Japan call options.