Japan’s stock market has had a record first quarter with the benchmark Nikkei up 13 percent year to date, and one analyst expects the bull run to continue as Japanese equities provide a good hedge against a slowing China.
"Over the next two years I see an upside of 50 percent in the Japanese markets, (compared to) 25 percent in the U.S. and 15 percent in Australia," Brad McFadden, Founder of market analysis and trading forum the Daily Trading Report, told CNBC Asia’s "Cash Flow" on Thursday.
According to McFadden, Japanese equities are being driven by inflation expectations and on hopes that the Bank of Japan will keep the yen down. It is not directly linked to the fortunes of the Chinese economy, he adds, unlike Australia with its huge dependence on Chinese commodity imports.
"There is a very big risk people run now with being overweight Australian equities, and that's China. Japanese equities get away from that," McFadden said.
McFadden is not bullish on the prospects of Chinese growth going forward. "For China to continue to grow at the current pace, given the size of the economy now, is almost impossible," McFadden said.
China's economy grew by an annual rate of 8.1 per centin the first three months of 2012, its slowest pace in nearly three years.