Japanese equities may lack the appeal of their counterparts in some faster-expanding Asian economies - but there are good reasons to believe they could outperform, says Thomas Becket, chief investment officer at PSigma Investment Management.
He points to numerous potential corporate restructurings, as Japanese conglomerates slim down and focus on what they are best at. He says merger and acquisition activity could finally become a positive spur for the market.
Mr Becket believes Japan leads the way in a number of fast-growing industries, such as top-end technology and energy efficiency. He suggests investors have chosen to ignore Japan's geographic location on the "dragon's doorstep", which should allow huge opportunities for Japanese companies to benefit from Asian growth.
"One of the lessons from the last few years is that serious profits can be made by betting against the rest," he says. "Japan is unloved, unfashionable, under-researched, under-owned and, most importantly, relatively undervalued.
"When one contrasts this to the seemingly 'one-way bet' that is China and the emerging markets, it is clear that buying Japanese equities is a controversial move - but one that could be very rewarding.
"We are reducing EM equities and putting the proceeds into Japan, to play EM growth through undervalued companies."
David Fuller's view From
a contrarian perspective, Japan should now be one of the better choices among
developed stock markets, with one proviso. The yen needs to weaken against the
US dollar, which means that it would also weaken against the renminbi. The Japanese
government appears to understand this, evidenced by its recently expressed concern
over the yen's appreciation against the greenback until December. However, the
impact of jawboning is temporary without action. For further technical evidence
of a weakening yen we need to see a sustained break beneath the recent low and
the rising 200-day moving average.
Readers interested in this brief section above may also wish to read Eoin's latest review of Japan below.