We’ve done a National Geographic – style deep dive into the world of the Japan bears, reading the scare stories about demographic decline, old people dying alone, underrepresentation of minorities on corporate boards, and other anecdotal ‘evidence’ of stagnant economic prospects. We tried to find the best examples of Japan bearishness: the scariest pieces of evidence we could find, stuff that portrays the world’s third largest economy as a zombie death trap for equity investors.
The two most established predictors of future equity returns are value and momentum. Academic research says buy stocks that are cheap and improving, at the fulcrum when other investors are starting to recognize that they are undervalued.
We believe Japanese equities today are at the fulcrum. Japan is the cheapest developed market in the world, and sentiment is shifting as other investors recognize the undervaluation. Japan bears are on the run.
Renowned investor and manager of the Yale endowment, David Swensen, recently highlighted his newfound enthusiasm for Japanese markets: ‘There are some very interesting things going in Japan, one of the places I’m most optimistic about. It seems like capitalism might actually be taking root, making progress there.’
Japan just hit its seventh consecutive quarter of positive GDP growth for its longest streak in 16 years. As the Wall Street Journal noted in November, ‘Japan’s economy has been remarkably consistent since the beginning of 2016, growing at an annual rate between 0.9% and 2.6% every quarter.’
This post was published at Zero Hedge on Dec 13, 2017.