In today’s briefing:
- Expanding Nominal Profits from Shift from Deflation Rather than P/B Is the Driver of Stock Prices
Expanding Nominal Profits from Shift from Deflation Rather than P/B Is the Driver of Stock Prices
- TSE market capitalization of has doubled since 1990 and the number of companies has doubled, while TOPIX is 20% lower than its 1989 high. Money went mainly to IPOs.
- P/B, TSE’s expectation for stock price appreciation, had high correlation with TOPIX, 0.84 from 1999-2019. However, it correlated negatively for 4 years from 2020 with other factors having significant impact.
- Correlation between TOPIX and nominal GDP is 0.94 for 2020-2023, showing higher correlation. Expectations of higher nominal profits caused by transition from deflation to inflation are behind the stock rally.
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