Japan is obviously the poster-child for long-term bear market.
Even last year, when other markets were boom, the Nikkei continued to slide, losing 3% for the year. You can see how much of a laggard it was in this chart.
But there are signs that the mood is turning.
First of all, it’s one of the hottest markets this year already, lapping the competition.
And even perma-bears like David Rosenberg are turning bullish. He writes today:
Japan trades at book value versus 2x in the U.S.A. and Europe. Forward P/E ratios are barely higher than 13x, about the most compelling they have been in the past two decades. According to the FT, 25% of Japanese companies trade at a single-digit multiple compared with a mere 4% in the U.S.A.. The Nikkei was down 3.0% last year even as practically every other market rallied, so it does have some catching up to do and the market decline in 2010 obviously opened up some serious value. Analysts globally have been dropping coverage of Japanese stocks ― a contrary bullish signpost. According to the FT, the dividend yield in Japan now exceeds the sub-2% you get in the U.S.A. and yet the market there competes with a 1% JGB yield compared with a 3.3% yield in the United States.
Credit Suisse is also out with a bullish note on Japan, arguing that rising US yields have historically been good for the Nikkei. One obvious reason this makes sense is that rising yields typically correlate to a stronger dollar, and thus a weaker yen, etc. and so on.
Update: We’re reminded that Barry Ritholtz has an excellent post on 10 reasons he’s intrigued by Japan. Definitely read it.