Japanese Equities: Is the Bear Market Over?

Charter Trust Company

By Mark Ungewitter

September 25, 2013


Japanese equities have spent the last twenty-four years in a secular bear market defined by lower lows and lower highs in market price.  There is now hope that a new Prime Minister, and a new brand of economics, will reverse this multi-decade trend. 

An analogy with the post-1929 Dow Jones Industrial Average suggests that the Japanese market is indeed ripe for change.  But Japanese valuations are not clearly attractive, and a higher high of cyclical proportion has yet to be observed.  See attached chart.

So, when will the bear market end?

If it’s true that major bottoms are forged from “price, time and apathy,” then Japan is clearly overdue.  But after two decades of false starts, the burden of proof rests squarely with the bulls.  From a behavioral perspective, a higher high above the 2007 peak is required to negate the long-term downtrend.  Earnings must also accelerate sharply to justify today’s trailing multiple of 24x.