Japan: at last breaking upwards?

A few weeks ago, we looked at how political risk seemed to be rising in the West, while the social mood turned negative.  This contrasted with Japan where 74% of Japanese are satisfied with their lives.  More generally Japan enjoys a political and social cohesion which we can only dream of in the West.  
 

As M&G said recently, Japan remains one of the most attractive countries in the world, with compelling valuations. 

 

Back in 1989 the Japanese stock market reached the heady heights of 38,957.  27 years later it is still 41% below that high.  This is why so many investors have struggled to embrace any possibility of a recovery in the Japanese stock market – “Japan is bad” is a hard-wired investment mantra.

 

The chart below tells an interesting story, and one full of potential.

 

You can see that the 20,000 level has been a point of resistance, a glass ceiling, for the Nikkei since 2000.  Each attempt to break upwards has failed.  This time might be different, and if it is there is considerable upside, eventually back towards 40,000 (though certainly not in a straight line, and over years).  

 

Of course it could be a false dawn, there have been many.  But you can deal with this by having a stop-loss.

 

Back in the September blog [Gold Members] we highlighted that Japan is both relatively cheap and under-owned by global investors.  More recently the volume of “shorts” in the Japanese stock market (those betting that the market will fall) have been noticeably high.  Japan is not just relatively cheap, but also unloved – that says “opportunity”.  

 

The last issue is which fund to buy, and with what review period.  You know that normally we prefer a 6 month review period.  However, we observed over the last year or so that the cycles in Japan seemed to be shortening.  We explore all of this here for Gold Members.  (If you haven’t yet considered Gold Membership, do have a look here – you can’t turn this down at just £1 for the first month - try it out and enjoy full access to all of our acclaimed research). 

 

 

 

Chart 1 - Nikkei at November 2017