The Japanese Stocks

The Japanese stocks:

Led by Japan's developments in technology, deregulation, and restructuring, the country appears to be in economic recovery. Its government is totally committed to improving conditions essential to a sustained recovery.  The U.S. media likes to refer to 1987 as the "year of the crash" but far more significant was the Japanese crash of 1990. Years later, Japan appears to be well on the road to recovery, supported by China demand for Japanese export product.

The remarkable Japanese stock market boom and bust history has had global economic and political repercussions. How about the Nikkei-225 rise from 86 in 1950 to 40,000 in 1989, with a 600 percent bubble growth in the last seven years of the 1980s? How crazy was that, yet right at the top " months before the bubble burst " there were all the world-leading sell-side financial services firms touting the Japan market.

For a time, Japan accounted for 45% of the global market cap, which defied all common sense, but the 1990s saw it shrink, from larger than the total U.S. market capitalization, to a fifth the size.
That was a good example of the concept called ‘reversion to the mean'.  Today I like the Japanese market enough to put 10% of a globally diversified portfolio into these stocks (1Q2005). But, I am not comfortable recommending specific stocks (other than a couple, like I did last May with Nasdaq-listed Fuji Photo).

Unless you are an investment professional, you are not likely to get into the intricacies of Japanese stock picking, or even an analysis of the Japanese economy and its sectors. Most investors are more likely to buy a Japanese fund or ETF.  In fact if you look at the charts below for JEQ and JOF (both closed end funds) or EWJ (ETF), you will see just how prescient was my call to recommend Japanese equities on May 17, 2004.

With about 10% of global stock market capitalization presently invested in Japanese securities, however, it is important to at least have a cursory look.


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