One of the main reasons to look at Japan is that it's rife with well-managed globally competitive businesses that would do well in a diversified portfolio of international stocks, said Rajesh Gandhi, lead manager of American Century's International Growth Fund.
One example is Fuji Heavy Industries (TYO: 7270), an automotive manufacturer that owns Subaru.
About 80 percent of its earnings are generated outside the country, with between 65 percent and 75 percent of that coming from the U.S. It generated a profit margin of close to 14 percent in the last quarter, which is higher than its U.S. peers, said Gandhi. Its stock is up 30 percent over the last 12 months, while, by comparison, General Motors' share price has climbed by only 13 percent.
He also likes Murata Manufacturing (TYO: 6981), which creates semiconductor-like parts that go into smartphones, TVs and other electronics. It's a global business that benefits from changes in the smartphone market — the more complex phones become, the more it benefits, he said. Its stock is up 48 percent over the last 12 months, and he thinks it still has a lot of room to grow.
These are just two examples of growing international operations, he said, but there are many others. Tomonori Kaneko, a portfolio manager with RBC Global Asset Management, likes companies that are in globally competitive export markets, like high tech. He also likes medical equipment companies and some of the telecoms that are expanding outside the domestic market.
There are opportunities in the domestic market, too, added Gandhi. As much as the economy has been struggling, wages have expanded from low single-digit growth to mid-single-digit growth. Unemployment is coming down, too.
With that in mind, some consumer staples and discretionary stocks, like Ryohin Keikaku (TYO: 7453), which owns Muji, a popular apparel and household item retailer, could be good buys.