Perseverance Pays in Japan


The world is once again talking about Japan. No, it is not another horrific catastrophe. In fact, it is the exact opposite.

***All of Japan celebrated the amazing World Cup victory on Sunday as Japan defeated the American women in what many soccer analysts call the 'greatest upset in World Cup history'. The resilience of the Japanese women as they came from behind several times throughout the match is a telling depiction of Japanese society as a whole, including its economy.

Indeed, much like the Japanese women, the third largest economy in the world has proven to be extremely resilient since the events at the Fukushima Daiichi nuclear power plant.

According to Bloomberg , the Nikkei 225, the most widely quoted average of Japanese stocks, advanced 2.9 percent over the past six weeks. The recent advance in Japanese equities is the largest among all 24 developed nations in the MSCI World Index. The Nikkei 225 is now within 4.7 percent of its pre-earthquake levels.

***Moreover, Bloomberg reports the surge in Japanese equities came on the expectation that the Japanese economy will "...expand at an annual rate of 4.9 percent and 4.2 percent in the last two quarters of 2011".

Shortly after the catastrophic events I mentioned the simplest way to take advantage of the decline in Japanese stocks - buy the iShares MSCI Japan Index Fund ( EWJ ) . My thesis right now remains the same.

After the tsunami Japan's  was by far the most intimidating market in the world. The fear was palpable. But the fear driven decline presented one of the best long-term investment opportunities in years.

What attracted me the most was the fact that on a valuation basis, Japanese equities had moved to their cheapest levels since the bottom of the epic 1973-74 bear market.

The opportunity for outsized gains still remains.

Since I recommended adding exposure to Japan through EWJ, the ETF has climbed 13.9 percent and looks to push higher as the Japanese economy climbs out of post-Fukushima turmoil.

***I recommend adding more exposure at these levels.

I expect to see a move that will retest the highs from back in late February as Japanese production continues to surge faster than analyst expectations. Just last week, the Trade Ministry of Japan revised production up to 6.2 percent from 5.7 percent. This was the fastest month over month growth since 1953.

Remember, the country had been in the doghouse of the global equity market for years after suffering through the Lost Decade. However, several months before the earthquake occurred, many investors were beginning to take a hard look at moving back into the Japanese stock market.

Many of the companies spent years during the Lost Decade repairing their balance sheets while stockpiling cash. And now that Japan is on the road to recovery from Fukushima all of the hard work Japanese companies spent building back their balance sheets should finally pay off. These companies are healthy and poised to grow as Japan's economy rebounds from the Lost Decade and the most recent natural disasters.

So don't doubt the Japanese and their amazing perseverance. The women of the Japanese World Cup team won against harrowing odds and in my opinion, so will the Japanese economy.

The easiest and most direct way to play this recovery remains the EWJ.

Feel free to email me at

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Stocks

Referenced Stocks: EWJ

Wyatt Investment Research

Wyatt Investment Research

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