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Long-term investors eye Japanese equities

Investors are looking at opportunities in the Japanese equity market, despite the country's protracted problem with low inflation and economic sluggishness, an analyst told CNBC.

Tomohiro Ohsumi | Bloomberg | Getty Images

Panasonic, Toyota or Canon are some of the better-known Japanese firms, but investors see opportunities beyond the usual spectrum," Francesco Curto, head of CROCI investment strategy and valuation group at Deutsche Bank told CNBC Tuesday. They believe that shares in Japan's healthcare, internet shopping and factory automation sectors are attractive medium- to long-term investments.

"When we look at fundamentals, actually, we find a lot of value among Japanese stocks," Curto said.

"Ultimately, fundamentals should prevail because even when we look at the horrible revisions that we have seen this year in terms of revenues, Japanese corporates have really been hit hard by the yen," he added.

At the start of this year, the yen was 120.30 against the dollar. It is now 104.82.

The Bank of Japan decided Tuesday to keep its monetary policy unchanged, while delaying once again the timing to reach its inflation target. The institution led by Haruhiko Kuroda is now projecting that it won't reach its 2 percent inflation target before April 2018.

"If you have the stomach to basically have to wait then definitely there's plenty of value on Japanese equities on a five to 10 years view," Curto added.


Aging population retirement
Mike Blake | Reuters

Expectations are that the Japanese economy will continue to see a subdued growth and inflation outlook, the International Monetary Fund said last August. It estimated that Japan will only growth 0.3 percent this year, and 0.1 percent in 2017.

Nicholas Weindling, Japan fund manager at JPMorgan, told CNBC in an email that there's a shift in the most attractive Japanese equities, but there are "strong investment opportunities" in the market.

"Japan has been famous for its consumer electronics and auto manufacturers, such as Panasonic or Toyota, but these sectors are highly competitive, often suffer from overcapacity, face ongoing price pressure, are dependent on overseas markets and consequently growth opportunities are likely to be limited going forward," Weindling said.

"We continue to focus on structural growth areas such as healthcare, the increasing penetration of internet shopping, stocks which benefit from the aging population, factory automation, the increasing number of tourists visiting Japan and companies prioritizing improving shareholder returns," Weindling told CNBC.

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