Financial expert warns: Japanese stock market boom harbors risks despite shareholder friendliness

Financial expert warns: Japanese stock market boom harbors risks despite shareholder friendliness

According to a report from www.nzz.ch, Japanese corporate culture has changed significantly in recent years. While Japan was once known as a “value trap” and was considered conservative and outdated, prominent investors such as Warren Buffett and Larry Fink are now raving about the opportunities that Japan offers. Swiss asset managers and German investment funds are also enthusiastic about Japanese investments. The Nikkei 225, Japan's leading index, has risen almost 11 percent since the beginning of this year alone and has gained almost 30 percent in the last year. But the euphoria also carries risks. The Nikkei could hit a new all-time high, bringing back memories of the infamous “bubble economy” of 1989. Nevertheless, there are still some inconsistencies in the Japanese stock market, as around half of all listed companies are trading below book value and there are structural challenges such as population decline and a lag in innovation. The air on the Japanese stock market is getting thinner and investors should take the risks into account. Exchange rates also have a major impact on the country's export companies and could trigger price losses.

The rise in the Nikkei 225 could cause investors to underestimate risks. Although the market is no longer considered cheap, critical voices who do not trust the bull market in Tokyo are skeptical. According to the Bloomberg database, the price-earnings ratio for the Nikkei has now reached an impressive 30, while it is 14 for the SMI, 13 for the DAX and 22 for the American leading index S&P 500.

There is a risk of a sharp correction in the market due to exchange rates, especially for the country's many export companies such as Toyota, Honda and Sony. A possible appreciation of the yen could trigger price losses across the board. Investors with a longer-term perspective in particular should not ignore Japan's structural challenges, such as the country's population decline and lagging behind in innovation.

Indeed, the Japanese equity culture is changing, but the risks cannot be underestimated. A comprehensive analysis and a critical perspective remain essential.