Japan Emerges as a Contrarian Play Among Experts

Most investors can rhyme off a litany of reasons as to why to avoid Japan – high government debt, deflation and a demographic vortex just to name a few. But Japanese equities appear to be emerging as a favorite contrarian play among some experienced investors.

No Title_43474529
Atomic Imagery | Digital Vision | Getty Images

“Japan is hugely misunderstood,” said Kevin Gibson, CIO of Japanese Equities at Eastspring Investments. He feels the main risks have already been priced into the market and valuations are too cheap to ignore.

“People tend to focus on the negatives… they are missing out on some meaningful changes - there's some really positive stuff happening,” said Gibson. He cited improved mergers and acquisitions activity, stronger balance sheets and a shift to an external focus as reasons investors should give Japan a second look.

Gibson isn’t the only Japan bull telling investors to wake up and smell the sake. Marc Faber, Editor & Publisher of The Gloom, Boom & Doom Report is also bullish on Japan. He predicts the country’s property sector and stock markets will surprise to the upside in 2012.

“In the case of Japan, I always argued that for the stock market to perform well, you need a weak yen. And this year the yen has weakened against the dollar by almost 7 percent,” said Faber. He told CNBC an ETF (exchange traded fund) that tracks the Nikkei is an excellent way to gain exposure to the Japanese market.

One year after the devastating March 11, 2011 earthquake and tsunami, Japan is diligently trying to rebuild its economy. Perhaps 2012 will be year it rebuilds confidence in its markets as well.