I’ve been saying for some time now that the time is ripe for investors to start considering investments in Japan again. Now, it looks like many investors have caught on. After a 16-year hiatus, investors are once again buying Japanese stocks.
Japan has been in something of an economic funk over the last 15 years, but signs are now pointing to Japan re-emerging from its dark spell. In light of this, savvy investors are buying up Japanese stocks and selling off government bonds.
“The amount of money in this trade must be staggering,” Andy Xie, head of Morgan Stanley’s Asia/Pacific economics team, said. “In a two-week trip to meet investors, I did not encounter one Japan skeptic.”
But, it was not that long ago that many steered clear of the Japanese economy for fear of losing in an unstable market. Many saw no clear horizon for when this could change either.
The Nikkei 225 hit a peak in 1989, and then started to drop, hitting rock bottom in 2003. Since that time, however, this index has been climbing, almost doubling in two years.
The Nikkei 225 is now one of the best performers in the world’s markets, rising 22.2% this year alone.
There are many reasons why the market is rising and investor confidence is increasing, including demand from China and an increase in operating profits.
Much of the turnaround is also credited to Prime Minister Junichiro Koizumi, who privatized the US$3-trillion Japan Post. Many anticipate further changes from the prime minister, which, in t urn, leads to increased confidence in the markets.
While the trend is rising, investors should take advantage. However, keep in mind that many stocks on the Nikkei are overbought, so there could be some weakness in the short-term. If you want to enter this interesting, lucrative market, ensure you watch your portfolio of Japanese stocks closely, because who knows how long this trend will continue.