[Practical Finance] Find Value-Up Related Stocks in the Continuously Hitting High Japanese Stock Market

Sectors to Watch for High Competitiveness in SoBuJang
Tokyo Electron, Advantest Show Strength
TIGER Japan Semiconductor Up 27.38% This Year
Low PBR Stock Investment ETFs Also Attract Attention

The Japanese stock market continues its high-flying streak, breaking record highs day after day. The Nikkei 225 index recently surpassed the all-time high set 34 years ago and, for the first time ever, climbed above the 40,000 mark, demonstrating unstoppable momentum. The relentless rise of the Japanese stock market has also increased interest in investing in Japan.

According to the Korea Securities Depository on the 6th, domestic investors purchased a net $104.66 million (approximately 139.5 billion KRW) worth of Japanese stocks last month. The amount of Japanese stocks held has been steadily increasing this year. It rose from $3.73856 billion in December last year to $3.89728 billion in January, and recorded $3.91499 billion last month.

However, since the Japanese stock market has experienced a strong upward trend, there is a high possibility of a correction, so investors should carefully select their investment targets. Experts recommend companies or sectors with high growth potential or competitive advantages. Additionally, with growing interest in value-up programs following the recent introduction of corporate value-up programs domestically, it is also worth paying attention to Japanese value-up related stocks, which are considered the originators of such programs.

Focus on Semiconductor Materials, Parts, and Equipment with Japanese Strengths

The sector receiving the most attention in the Japanese stock market is undoubtedly semiconductor materials, parts, and equipment (SoBuJang). Japan holds competitive advantages and high growth potential in this area. Furthermore, expectations are rising as the Japanese government actively supports this sector.

Jinyoung Kim, a researcher at Kiwoom Securities, stated, "Amid the strong determination of the government and companies to restructure and achieve self-reliance in the semiconductor supply chain, an environment is being created for competitive Japanese SoBuJang companies to grow." He added, "As government and corporate efforts continue, the stock prices of Japanese semiconductor companies such as Tokyo Electron, Advantest, Renaissance Electronics, Disco Corporation, and Hoya have maintained a stronger trend compared to other industries." He further explained, "Although there is accumulated stock price pressure due to the rapid rise over the past year, long-term structural growth is possible as expectations for global semiconductor industry improvement and policy momentum are reflected."

In fact, Japanese semiconductor-related exchange-traded funds (ETFs) listed on the domestic stock market have recorded favorable returns this year. TIGER Japan Semiconductor FACTSET has risen 27.38% since the beginning of the year, ARIRANG Japan Semiconductor SoBuJang Solactive 24.84%, and ACE Japan Semiconductor 20.97% respectively.

A representative semiconductor-related ETF listed in Japan is the Global X Japan Semiconductor ETF. This ETF invests in 30 to 40 stocks within the Japanese semiconductor industry, including semiconductor manufacturing, materials, equipment, and parts, with equipment accounting for about 60% of the portfolio. The top holdings by portfolio weight include Advantest (10.6%), Screen Holdings (10.6%), Lasertec (10.5%), Disco (10.2%), Tokyo Electron (9.7%), and Renaissance Electronics (9.4%). Researcher Kim noted, "As of 2022, Japan ranks second globally in the semiconductor equipment industry after the United States, holding over 25% market share." He added, "With the successful attraction of global semiconductor manufacturers, the stock prices of Japanese semiconductor SoBuJang companies are expected to continue their strong performance."

How to Invest in Japanese Value-Up

This year, with the government's introduction of corporate value-up programs, interest in value-up related stocks has increased significantly, as low price-to-book ratio (PBR) stocks have surged. Since the corporate value-up program was benchmarked after Japan and the Japanese stock market's strength is known to have influenced corporate value-up policies, interest in Japanese-related stocks has also grown accordingly.

In this context, an ETF tracking the JPX Prime 150 index, created as a result of Japan's value-up program, was launched in January this year and has attracted attention. The JPX Prime 150 index consists of top-tier companies listed on the Tokyo Stock Exchange (TSE) Prime Market as of June 2023, selected based on two value creation metrics: capital returns based on financial results and market evaluation based on future information and non-financial data, identifying Japanese companies expected to create value. Byungwook Choi, a researcher at Meritz Securities, explained, "Recently, due to the value-up program issue domestically, low PBR stocks have shown strength, which may lead to the misconception that the JPX Prime 150 index is similar. However, the JPX Prime 150 index is composed of stocks that have already undergone value-up and have a PBR above 1."

On January 24, the iFreeETF JPX Prime 150 ETF, which tracks this index, was launched. Researcher Choi said, "This ETF also considers the effect of foreign capital inflow, which is one of the purposes of the value-up program." He added, "Furthermore, on the 18th, a futures product on the index will be launched to make it easier for overseas investors to access the index."

There is also an ETF that invests in low PBR stocks. The Simplex PBR Improvement over 1X ETF, launched by Simplex Asset Management in Japan in September last year, is composed of stocks with a PBR below 0.7 that are expected to increase their PBR through dividends and share buybacks, rather than large-cap stocks with a PBR above 1. The top holdings include Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, Mizuho Financial Group, and Honda Motor, covering financial and automotive sectors. Researcher Kim explained, "This ETF recorded significant outperformance against Japanese benchmark indices in its early listing period, but since the end of last year, large-cap focused indices such as JPX Prime 150 and Nikkei 225 have outperformed it." He added, "While factors such as exchange rate effects and earnings improvements centered on export stocks also played a role, it is believed that the voluntary shareholder value enhancement efforts of companies targeted by the Tokyo Stock Exchange when developing the JPX Prime index also had an impact."