Is it the end of the world? Don’t worry! Japan has value stocks. – 長期投資で年金問題なんて怖くない

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Semiconductor and AI-related stocks are plummeting globally. Having surged on strong momentum, many of these stocks had become overvalued and are now undergoing a market correction.

In the Tokyo market, Kioxia fell 32.32% week-on-week, Fujikura 13.17%, Tokyo Electron 10.75%, and Disco 10.75%—all significantly underperforming the Nikkei Average’s 6.44% decline. This drop brought Kioxia’s estimated P/E ratio down to 7.4x, well below the Nikkei Average’s 17.42x. As a stock with high expectations, it has a margin buying ratio of 24.46x, meaning outstanding long positions vastly exceed short positions; upside potential is currently quite heavy. A glimmer of hope lies in the earnings announcement scheduled for July 31.

Will they announce shockingly strong results and a positive outlook?

・Japan: NT Ratio Drops to 16.36x

As growth stocks were sold off, buying interest shifted to value stocks. While the Nikkei Average fell 6.44% week-on-week, the TOPIX declined by only 2.9%. Consequently, the NT ratio fell from 16.98x the previous week to 16.36x.

Among stocks trading below a P/B ratio of 1x, companies such as Nippon Steel, Sumitomo Metal Mining, Mitsubishi HC Capital, Honda Motor, Topy Industries, and Toyota bucked the downward trend and saw their share prices rise.

In contrast, only 10 stocks in the S&P 500 trade below a P/B ratio of 1x. Bolstered by TSE reforms, the number of Japanese stocks trading below a P/B ratio of 1x (currently 578) is likely to decrease steadily. This presents an opportunity for long-term investment; simply buying and holding for 30 years could yield great rewards. The top 10 companies by market capitalization trading below a PBR (Price-to-Book Ratio) of 1.0x (within the TOPIX index) consist of solid, blue-chip stocks: Toyota (0.95x), Honda (0.51x), Japan Post (0.67x), Denso (0.96x), INPEX (0.81x), JR Central (0.71x), ENEOS (0.99x), Nippon Steel (0.55x), Daiwa House (0.98x), and Kansai Electric Power (0.74x).

・Commodities: Import prices are rising

In Japan, import prices continue to climb due to both rising commodity prices and the ongoing depreciation of the yen. The import price index for June stood at 196.60, up 2.5 points from the previous month. Price increases typically ripple through the economy in this order: import prices → producer prices → consumer prices. This week in commodity markets, wheat prices rose 8.65% (yen-equivalent) and crude oil surged 16.18%; there is no sign of the upward trend in prices slowing down.

Japan’s CPI currently stands at 1.5%, but this figure feels disconnected from the reality of daily life. Inflation erodes the value of cash; investing in Japanese value stocks serves as a hedge against inflation.

・US: SOX Index drops 9.97% week-on-week

Despite the recent sharp decline, the US semiconductor index (SOX) remains up 58.45% year-to-date, leaving it vulnerable to further selling pressure. Meanwhile, value indices in the US are performing steadily.

・SpaceX: It turns out they were junk bonds

SpaceX corporate bonds are facing a sell-off. As the initial spreads were tight for this inaugural issuance, spreads have widened across the board. The spread on the 2056 bond has expanded by approximately 130 basis points (bps)—from an initial T+175 bps to the current 307.63 bps—while the spread on the 2031 bond has widened from 110 bps to around 170 bps. Both are BBB-rated bonds, but the current T-spread for 5-year BBB bonds is around 78 basis points. Given that the spread for BB bonds is 167 basis points, the market is pricing them at a BB level. The stock price has fallen below its public offering price.

・Caterpillar: The “AI premium” is fading

Caterpillar’s stock previously had strong momentum, but the “AI premium” has begun to wear off. Even so, its forward P/E ratio stands at 35x, compared to 19.38x for peer Sandvik and 14.95x for Komatsu.

Caterpillar’s projected EPS is $24.74; at a forward P/E of 25x, the share price would be $618.

The Caterpillar-to-Komatsu ratio has narrowed to 11.32x.

・India: Foreign investors are net buyers

India’s Consumer Price Index (CPI) for June came in at 4.38%, exceeding the market forecast of 4.20%. Trade statistics show a widening trade deficit driven by increased imports, and the currency is weakening. In the government bond market, yields on medium-term bonds have risen, resulting in a “bear flattening” of the yield curve. Current conditions are not favorable for investing in Indian stocks (though long-term accumulation strategies remain fine).