Consider cheap shares and Chinese consumer demand
Japan has been in a bear market for nearly 20 years. With a stock market index at one quarter of its 1989 value, it looks as though the world’s second-largest economy may soon lose that place to China.
Over the past two decades, there have been many false dawns, all of which have amounted to nothing. The political landscape is once more in a state of flux, with a leadership battle impending in the autumn and the likelihood that Japan’s Prime Minister Naoto Kan will be ousted for the DPJ’s poor showing in the July Upper House elections.
Add to that an ageing and shrinking population, an insular society that is unwelcoming to outsiders, as well as Japanese reluctance to invest in domestic industries, and it’s easy to see why Japan has been in a 20-year recession. It also has the largest public deficit in the world, at over 200% of GDP.
So is anything different now?
The argument for investing in Japan certainly rings true by most standards. With Japanese shares cheaper than ever, there is now value to be found in firms such as Toyota, Sony and Canon; the panic after the Lehman shock means their shares were and remain undervalued. Indeed, many firm’s market capitalisations are lower than the break-up value of the business.
Japan should benefit from China’s growth—the richer its population becomes, the more they will want to buy goods such as Toyota vehicles and Sony TVs from across the Sea of Japan. This process may take a while, though.
With more than 20% of global R&D carried out in Japan, the opportunity for investment growth could lead to substantial rewards in the years ahead. So maybe Japan is worth a dabble as part of your overall investment portfolio.