How to Invest in Japan? Small Caps & Dividends


Nicholas Vardy Image Nicholas Vardy Editor, Bull Market Alert, The Alpha Investor Letter, and The Global Guru

Say Japan to a global investor, and he thinks “stagnation,” “malaise” and the “financial bubble popping”. It wasn’t always so. Thirty years ago, Japan was the “China” of its day, notes Nicholas Vardy, editor of Global Guru.

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After nearly reaching 40,000 on December 29, 1989, the Nikkei index plummeted more than 70%. The Nikkei recently closed at 19,753 yesterday -- almost 28 years later.

A country that once accounted for 30% of the global stock market capitalization all but disappeared from the radar screens of U.S. investors. Today, an entire generation of U.S.-based professional investors have never invested in Japan.

After spending almost three decades in the doghouse, here’s why I think the Japanese stock market’s recent rally is set to continue.

First, the Japanese government is doing everything in its power to revive the Japanese stock market. The Bank of Japan has doubled its annual ETF buying target to ¥6 trillion ($48 billion).

Japan’s Government Pension Investment Fund, the world’s largest, now invests 25% of its assets in Japanese stocks. And yes, even skeptical foreign investors are once again investing in Japan.

Second, Japanese small caps are both hated and ignored. Since the Japanese stock market peaked in 1989, trading volumes in Japanese small caps have all but evaporated.

Investment banks and brokerages produce next to no research on lightly traded Japanese small caps.