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December 2009
Having coming out of recession in the second quarter, the Japanese economy continued to grow in the third quarter. Net exports were firm as overseas demand for Japanese goods continued to improve. However, it was domestic demand that drove growth, with firm consumption and a recovery in capital spending helping to support the economy.
Despite solid growth in the economy, the Japanese market has been sluggish since August, underperforming its overseas peers. If we believe recent surveys, investor sentiment with respect to Japan is worse than it has been for some years. Possible reasons for this include:
Looking forward, the Japanese market continues to lack obvious catalysts to drive it higher. However, valuations look low relative to historic levels by many indicators following the recent fall in share prices. There has been much market commentary on the above possible reasons for Japan’s underperformance, leading us to believe that they should now be largely “in the price”. Given the market’s low valuations, its recent underperformance, and low expectations and sentiment, we feel that downside risks are limited. Should a positive catalyst become apparent we feel that the market could move higher in the near future.
Page last updated December, 2009 ID1722