Third, roughly 40% of stocks have no analysis coverage, and about half of Japanese companies in the Tokyo Stock Exchange index are trading below book value. “It really is an opportunity for stock pickers relative to the other international markets, especially the U.S.,” Nomoto said. “U.S. companies are very strong, and so I understand the valuations. But these companies are very strong, too, yet the valuation difference between the Japanese and the American company is significant, and that’s an opportunity.”
The fourth thing making Japanese equities attractive is the reform taking place in corporate governance, which should make international investors more comfortable with taking positions.
“All these should be very positive for Japanese equities,” Nomoto said.
The risks in Japan are no different than anywhere else, he continued. “Many of these companies rely on exports, so if the global economy closes, the Japanese equity market would not perform. That’s the biggest risk scenario, and it’s external rather than domestic.”