QROPS Advice: Investment News: Spotlight on Japan

Anybody that has followed global markets over the past 20 years will know that the root causes attributable to the recent financial crisis are by no means new. As recently as the early 1990s, the world's second largest economy, Japan, was in meltdown as a direct consequence of a 'bad debt' issue, caused, in part, to overly-relaxed lending practices by its local banks. This lending fuelled a property bubble which was unsustainable (resting, as it did, on unrealisable land values), turning many debts bad. This ultimately resulted in many banks having to be bailed out by the government, a very familiar story of late...
The fall-out of the catastrophe was appropriately named "the lost decade", owing to the lack of economic activity that followed in the region. As with technology stocks that famously failed in the late 1990s, Japan became massively out of favour with investors, as the value of the local stock exchange spiralled ever lower. Both local market participants, as well as foreign investors have had relatively little exposure to Japanese equities ever since, with many not appreciating the substantial turnaround in Japanese corporate fortunes, as a deeply unloved and under-owned asset class.
However, indicators suggest that Japan is once again returning to favour. It has been a promising start to the New Year for Japanese equities, with foreign investors piling into the market, buying a net USD17.3bn worth of stocks in January alone, the largest monthly purchase in three years. That compares with a net outflow of foreign money in the rest of Asia of USD3.35bn, according to data from Nomura. Japanese machinery orders rose the most in nine years from a record low, and 'domestic orders', an indicator of business investment in the next three to six months, climbed 20.1 percent in December from a month earlier.
Again, as with Technology company valuations, the lessons learned from 'the lost decade' have prepared many of Japan's leading companies for a promising future, with extremely healthy balance sheets and price earning ratios reflecting excellent value when compared to stocks elsewhere.
Whatever your view of the Japanese economy as a whole, the fact remains that Japanese firms still dominate and lead many global industrial sectors from autos, via specialist materials and capital goods to consumer items, e.g., from Suzuki to Nintendo. Therefore as the global economy regains its composure, Japanese firms should disproportionately benefit from their geographically well diversified sales base, particularly their exposure to the BRIC countries.
Looking ahead for Japan, Chris Taylor of Neptune Investment Management, commented "We expect improved corporate earnings from the global companies that have little dependence upon the domestic economy. They will be helped by their substantial exposure to non-OECD economies which will continue to expand strongly, contributing about two-thirds of likely global economic growth. The combination of these factors should see such Japanese firms collectively turn in the highest prevailing rate of earnings expansion across the globe."