Conclusion
Since Shinzo Abe was elected, Japan has been the best-performing regional market. But I take comfort in the fact that the overall valuations of Japanese stocks, even after impressive price gains, have actually become cheaper on a price-to-earnings basis because earnings increased even more; note that this stands in stark contrast to the situation of European or United States indexes, where smaller gains were all driven by market price-to-earnings ratios rising.
Two key initiatives from Abenomics’ third-arrow reforms revolve around corporate governance and investor stewardship. Both reform initiatives are designed to encourage companies to become better allocators of capital and encourage them to use their stockpiles of cash, leading to more distributions to shareholders. We see this trend of higher dividend payouts as sustainable for some time, especially as profits continue to increase.
To read the full research on our Japan Index rebalance, click here.
1Source:WisdomTree, Bloomberg, as of 05/31/14.
2Toyota was a 0.98% weight in the WisdomTree DEFA Index as of 6/24/14
Important Risks Related to this Article
Foreign investing involves special risks, such as risk of loss from currency fluctuation or political or economic uncertainty.
Investments focused in Japan are increasing the impact of events and developments associated with the region, which can adversely affect performance. Dividends are not guaranteed and a company’s future abilities to pay dividends may be limited. A company currently paying dividends may cease paying dividends at any time.