Time to Buy Japanese Stocks?

Dennis Stattman | February 19, 2013 | Topics: Economic Outlook,  Equities 

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Well the short answer is the best opportunities are in stocks.

As you know, the year has started with the financial market somewhat mixed. Bond prices have generally been soft but some of the equity markets have done well. In particular, the Japanese stock market has shown outstanding performance and the US stock market has been quite strong. Unfortunately, European markets have been flat to down. The good news is the BlackRock Global Allocation Fund has been well positioned to take advantage of this environment.

Now one of the areas that we think is of greatest interest is the Japanese equity market. While it's true that Japanese stocks have already enjoyed strong gains - that market's up 38 percent in local currency terms from its low in 2012 – we think that it's possible that the Japanese stock market could show strong relative performance for several years to come. And that's why the BlackRock Global Allocation fund has strongly overweighted Japan.

Why our optimism? Well, it's a potent combination of factors. First, valuation. The Japanese stock market started this rally as the cheapest major market in the world. We now have a combination of value and momentum that is rare in markets, and that change has been catalyzed by an impressive landslide victory by Prime Minister Abe's party, running on a platform of getting Japan out of deflation and increasing inflation. And this is going to be done by both fiscal and monetary policies with important changes coming at the Bank of Japan.

Now there's been so much skepticism about the Japanese stock market that investors in both Japan and internationally have very little exposure to Japanese stocks. In fact, both Japanese government and corporate pension plans have less than 20 percent of their assets in the Japanese stock market. And we think that combination of value, of price gains, and of fundamental reasons to expect the Japanese market to go up is going to lead to broader investment interest. And the BlackRock Global Allocation Fund is heavily overweight the Japanese stock market, but we're hedged on most of our yen exposure. And we would suggest to investors that while the Japanese stock market offers we think excellent multi-year opportunities, investors should consider hedging their currency exposure to get the best gains in Japan.

Investing involves risk including loss of principal. Stock and bond values fluctuate in price so the value of your investment can go down depending on market conditions. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. These risks often are heightened for investments in emerging/developing markets or smaller capital markets.

The opinions presented are those of Dennis Stattman, Portfolio Manager and Head of the Global Allocation Team, as of February 7, 2013 and may change as subsequent conditions vary. Individual portfolio managers for BlackRock may have opinions and/or made investment decisions that may, in certain respects, not be consistent with the information contained in this presentation. This is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information and opinions contained in this presentation are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy. Past performance does not guarantee future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the viewer.

You should consider the investment objectives, risks, charges and expenses of any fund carefully before investing. The funds' prospectuses and, if available, the summary prospectuses contain this and other information about the funds, and are available, along with information on other BlackRock funds by calling 800-882-0052. The prospectus and, if available, the summary prospectuses should be read carefully before investing.

The information on this web site is intended for U.S. residents only. The information provided does not constitute a solicitation of an offer to buy, or an offer to sell securities in any jurisdiction to any person to whom it is not lawful to make such an offer.

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USR-1611

About the Author

Dennis Stattman, CFA
Managing Director, Portfolio Manager, Head of the Global Allocation Team

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