If ever a market had a consistent record for disappointing hopeful investors, it is Japanese equities.
At an investment conference recently, I heard a manager say that the Japanese themselves do not believe in their stockmarket, so why should we foreign investors?
Admittedly, he was a UK income fund manager but his point struck a chord with the audience.
Credit Suisse clearly believes the corner might have been turned. In a note put out at the end of last month, its equity research analysts alerted a tactical upgrade to this market, raising it to overweight. This comes at a time when it is widely expected that China has at last pushed Japan into third place in the global economic league tables. Given the disparity between the economic performance of these two Asian giants, this is hardly surprising.
The arguments for returning to this market make interesting reading.
Japan has a new finance minister who is expected to take a more pragmatic approach to fiscal policy than his predecessor. In particular, he is known to favour a weaker yen as a way of combating the deflation that has plagued the country over the past two decades. With the dollar now strengthening, it seems likely he will get his way.
But perhaps the strongest case for favouring this market is the one that has been trotted out many times in the past. Regardless of demographic pressures in Japan, it is well positioned to benefit from the growth in the region overall.
In particular, the economy has significant exposure to manufacturing, so will benefit disproportionately from inventory rebuilding which may have further to go.
Indeed, Japan suffered more than other developed countries in the global slowdown and is showing signs of recovering more dramatically. With the epicentre of global growth continuing to shift to the East, there seems no reason not to believe that this will continue.
Even so, sceptics will undoubtedly point to the many false dawns that have occurred in the past.
Japan suffered more than other developed countries in the global slowdown and is showing signs of recovering more dramatically
A weaker yen will have implications for foreign investors.
In the past when the currency has fallen, the stockmarket has outperformed other developed markets in local terms but has lagged once the foreign exchange conversion has been taken into account.
For sterling investors, this may prove less of a concern, given the likely pressure that our own currency will suffer, but it is a consideration.
The experience of recent history suggests that riding the turn in the Japanese market can pay dividends, but hang on in too long and your gains will evaporate.
Given the poor performance of Japan last year, it is not unreasonable to assume that there is scope for this market to continue the process of catching up, but it will require careful monitoring.
At least valuation levels bear comparison internationally. Of course, when the Nikkei 225 index was flirting with 40,000 (it was not much above 10,000 at the end of January), few believed that forward multiples of 100-plus were under threat – just as technology investors felt comfortable with similar ratings as the new millennium was ushered in.
After two decades of a downward correction, perhaps now could be an opportunity to dip a toe back in.
Brian Tora (brian.tora@ centaur.co.uk) is principal of the Tora Partnership