As the risk environment has heightened since the beginning of the year, one of the effects has been a stronger Japanese Yen. The Yen has risen some 3% so far this year, a reversal of the 2013 trend of double digit declines.
One of the beneficiaries of this reversal is Japanese pharmaceutical companies. Below is yesterdays performance of Japanese pharma companies, measured in USD.
The group is statistically cheap using our valuations metrics that adjust for corporate intangible investments. On an adjusted cash flow basis, many companies sell for less than 10x cash flow, and in some cases at a discount to book value.
Intangible Adjusted Valuations
When compared to the MSCI World index, relative valuations look pretty cheap as well. As a group, Japanese pharma sells for a 40% discount to MSCI World index cash flow or book value, and at the same time, yields 90% of the index.