A rare P/BV of 1

Japanese companies, like the rest of its competitors around the world, are struggling with recessionary pressures. The effects of recession has hit sales(local and export) and increased the difficulty in raising funds. Some that are not level footed face the possibility of bankruptcies. In fact according to BBCNews, company bankruptcies in Japan jumped 24.7% in December from a year earlier. For the 2008 year, it rose 11%, the most in 8 years. With regards to operating loss, the latest forecast figures are also grim. Toyota, the world's second largest automaker is expected to lose USD1.7B this coming March, its first loss in 71 years due to slowing demand and a strong yen(yen soared 25% in 2008). Similarly, Sony is also expected to face an operating loss in the coming March of USD1.1B, its first loss in 14 years. Without doubt, such companies are all too ready to axe their workforce.

Would we be seeing opportunity here to buy cheap beaten up "blue chip" Japanese companies? In fact, according to IHT, refer here, the Nikkei which is nearing its 26 years low, and with a rare P/BV(or NTA) ratio of 1 now (October low of 0.87 when the index hits 6,995) indicates that investors are valuing companies at less than what they could theoretically be liquidated for. It added that even during Japan's decade of economic stagnation, deflation and banking troubles, the price-to-book ratio never fell below 1.

However, some will advise you to keep your money first. Sourcing from Bloomberg here, Analyst John Mihaljevic, writing on the Web site Seeking Alpha, looked at corporate Japan’s evolution since the 1990s, and it’s not pretty. “We approached our study of Japanese stocks with the hypothesis that we should be able to find some compelling investments given the cheap valuations of a large subset of Japanese public companies,” wrote Mihaljevic, managing editor of the Manual of Ideas in New York. “So far, however, we have remained unimpressed.” Five specific issues are explored: a lack of business focus, murky corporate governance, little regard for returns on investment, the high cost of production, and clubby boardrooms.

Despite the above, will you forego this golden opportunity to make money in the long run since the average Japanese stocks are at firesale prices? Actually I am not sure. I did try to do a search using the Bloomberg machines to compare the Nikkei's P/BV with the Bursa or HangSeng in general. Apparently, no such average can be calculated from its database. However, there is such information based on individual stocks. To feel how a 1X P/BV is like, look at AirAsia now. Also, for comparison based on Kenanga Research's latest sector coverage, the P/BV of Property is 0.8X, Plantation 1.7X and Oil & Gas 1.9X . So is P/BV of 1 cheap then? I think the Nikkei's P/BV of 1 is cheap but too generalised as we must also look deeper into the individual stocks themselves. In addition, I believe other valuation ratios (p/e, eps growth, roe etc) must also be used to justify our conviction to buy.

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* Happy Ponggal to you! Hope you have the sweetest start for the year and your low is bearable while your high is exceptional!

* Citi which expects a technical recession in 1Q09 for Malaysia, downgrades on Malaysian banks but still a hold AMMB. It also says Singapore property is in a Bear Trap and advises to sell into strength.

* YahooNews: Yahoo names tech veteran Carol Bartz as new CEO.

* US Trade deficit hits 5 year low in November due to fall in oil prices and slower domestic demand.

* Bloomberg: ABN Ambro: China, HK stocks may be the first to bottom amidst slump.

* RTTNews: China's foreign exchange reserves reaches USD1.95T on 31st December. For the year, it was up USD417.8B. However, the 4th quarter increase has slowed down compared with the previous 3 quarters.