2024 Half-Year Recap | Top Performing Japanese Stocks to Watch

In One Chart wrote a column · Jun 21 17:02

At the beginning of this year, Japanese stocks briefly led the global market, breaking a 34-year-old record high. However, the continuous depreciation of the yen has recently hindered their upward momentum. Unlike the strong surge seen from last year to earlier this year, Japanese stocks are now facing accumulating uncertainties. After reaching a historic high, the Nikkei 225 Index has been consolidating sideways for quite a while, fluctuating between 37,000 and 40,000 points over the past two months.

2024 Half-Year Recap | Top Performing Japanese Stocks to Watch

Despite these challenges, Japanese stocks have still shown considerable profit potential this year. The 75-year-old Japanese sports giant $ASICS (7936.JP)$ has seen its business flourish, with its stock price doubling year-to-date. Semiconductor stocks have been a standout theme within Japanese equities this year. Global semiconductor polishing equipment leader $Disco (6146.JP)$, Japanese semiconductor equipment manufacturer $Kokusai Electric (6525.JP)$, and $Tokyo Electron (8035.JP)$ have risen by over 77%, 55%, and 38%, respectively. Since last year, these companies have seen cumulative increases of up to 400%, 124%, and 170%. Industrial machinery stocks have also performed remarkably well this year. Japanese industrial giants $Mitsubishi Heavy Industries (7011.JP)$ and $Hitachi (6501.JP)$ have risen by over 99% and 67%, respectively.

There are two main drivers behind this rise:

First, there is increased demand due to the manufacturing recovery in China, the U.S., and Japan. The yen's depreciation has benefited these export-oriented companies, many of which have clients in China and the U.S., especially Mitsubishi Heavy Industries in the defense sector.

Second, from a valuation perspective, the profit margins of these industrial machinery companies have improved compared to past years. Traditionally, these companies retained a lot of cash on their balance sheets without significant dividends or investments, maintaining financial health. Now, with increased demand, they have more capacity for stock buybacks and dividends. However, their dividend payout ratios remain low, with yields generally around 1.5-2%.

Additionally, the depreciation of the yen has helped Japan's tourism industry gradually recover to 2019 levels, boosting department store sales significantly. As a result, the stock price of $Isetan Mitsukoshi Holdings (3099.JP)$ has surged by over 86% year-to-date.

As Japan nears an interest rate hike cycle, several financial stocks have surged, taking top spots on the gainers' list. $Tokio Marine Holdings (8766.JP)$, $Sumitomo Mitsui Financial Group (8316.JP)$, and $Mitsubishi UFJ Financial Group (8306.JP)$ have posted impressive year-to-date gains of 57%, 47%, and 27%, respectively. $MS&AD Insurance Group Holdings (8725.JP)$ has also seen a strong performance, soaring over 68% this year.

Japanese trading giants $Mitsui (8031.JP)$ and $Mitsubishi (8058.JP)$ have also delivered standout performances, hitting historic highs at one point. While their stock prices have slightly pulled back, they still boast year-to-date gains of 40% and 35%, respectively, significantly outperforming the Nikkei Index.

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