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So says SocGen’s resident value investor Dylan Grice, who doesn’t go in for saloon bar nuclear physics.
From his latest ‘Popular Delusions’ note:
Something I've found striking watching the endless interviews with nuclear experts on the various TV news shows has been their confidence that there won't, there can't be another Chernobyl. The reactors and safety mechanisms aren't even comparable, they say and I'm sure they're correct. I know even less about nuclear physics than I do about macro economics. But I do know that people mistake understanding the causes of a past event to understanding all possible causes of that event. So I've been watching these experts and wondering, are they telling us that another Chernobyl cannot happen because it absolutely cannot happen under any circumstances, or are they falling into the trap of thinking that because it's not a Chernobyl-type reactor. If so, doesn't the possibility that a Chernobyl type leak could happen in a completely new and hitherto unanticipated way remain open?
I have no idea. But as the story unfolds and the threat to the number four reactor intensifies, I'm beginning to fear that it's the latter. Let's hope and pray this doesn't happen. But if it does, we could see another 20% off the Topix in very short order. At that point we should be buying with both hands.
Right now, Grice reckons valuations are attractive.
When you say to people that Japan is beginning to look cheap, a common reply is that it's been cheap for ages. I disagree. The following chart shows Japan's intrinsic value to price ratio (IVP). Only in the past year or so has the Japanese equity market traded at a price broadly consistent with intrinsic value
A similar picture emerges using Shiller's cyclically adjusted PE ratio (top chart above), which with the Topix at around 800 now stands at roughly 16x. And while I worry that JGBs are overowned within the financial system, the flipside is that Japanese equities are massively underowned (second chart). Japanese stocks are starting to look attractive.
Related link: Nikkei 63,000,000 – FT Alphaville
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