Changing fashions will favour Japan
Feb 18, 2011
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Japan's appeal "is widening beyond the cadre of contrarians" who always back it, says Ellen Kelleher in the FT. As emerging markets become less enticing amid inflation worries, foreign inflows into Japan have risen, helping both the Nikkei and the Topix indices to nine-month highs. Japan is also the best-performing Asian equity market this year.
Japan is a play on the improving global cycle and especially fast-growing Asia. What's more, there is no risk of tighter monetary policy, says Jonathan Allum of Mizuho. Indeed, if inflation chases out deflation, it would bode well, as it should prompt domestic savers to ditch bonds for stocks.
Meanwhile, despite the strong yen, profits have been strong – partly because companies have used the financial crisis to get leaner and meaner. In the year to March 2011, pre-tax profits excluding financials are expected to grow by 56%.
Further plus points are a Topix dividend yield above the S&P 500’s and a book value of just over one. Japan, says David Herro of the Oakmark International Fund, is "a steal".
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