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Take a long view and seize Japan's opportunities
In spite of significant corrections in its economy over the past several years, Japan remains a region of great opportunity for investors, says Rino Marcone of Montreal-based investment advisors Braley Winton Financial Group.
"The key factors that make Japan so attractive just can't be ignored," he says. "It is the world's second largest economy, third largest exporter and has the third largest stock exchange - and with a population of 128 million, the market opportunity is huge."
Japanese stocks are in a prolonged bear market, which is likely to continue. Volatility will be higher than in North America and Europe, and economic recovery will take some time, says Mr. Marcone.
"But this is not necessarily bad news for investors because stock in many companies is cheap, with 40 to 50 per cent of stocks in the Japanese market trading at below book value," he says.
In addition, the Japanese market is not as closely tied to the fortunes of the North American economy as some other regions, and will therefore not face the same potentially negative impacts of a U.S. downturn. Japan is also well-positioned to benefit from growing ties with China.
However, Mr. Marcone says investors need to take a long-term view of Japan and not expect quick results. Smaller investors should look for mutual funds that have a good track record in the Japanese market, and particularly those focused on value investing.
While Japan is an important element of a diversified portfolio, he recommends that investors place no more than five to 10 per cent of their holdings in Japanese-focused funds, and then be prepared to wait for results.
"In spite of the opportunities, I would not recommend overweighting Japan because the risks are probably still higher than the average investor can tolerate," he says.
Land of Rising Opportunities
By Peter MacArthur,
Senior Trade Commissioner in Tokyo
Having posted its sixth consecutive year of growth, Japan is once again showing why it is appropriately called the "Land of the Rising Sun." Japan is Asia's largest economy - bigger than India and China combined - and the second biggest economy in the world. As a lucrative market with immense buying power, Japan also imports more goods and products than any other country.
As well, it is considered one of the world's most innovative nations on the strength of its massive investment in scientific research and tremendous success in the commercialization of new discoveries. Furthermore, as a major source of foreign direct investment, Japan lies at the heart of supply and value chains that reach across Asia and around the world.
For Canada, Japan's importance as a commercial partner cannot be overstated. It is our third largest export market - our biggest offshore market for agri-food - and fifth largest foreign investor. More than 3,000 Canadian firms export to Japan each year. Some 550 Japanese affiliates are currently active in Canada, and tens of thousands of Canadian jobs have been created by Japanese investment.
Japanese firms are key partners for Canadians in the automotive, aerospace, energy and mining sectors. More than 100 Canadian firms have established a direct presence in Japan. Those showing they can meet Japan's high standards are richly rewarded and have the added advantage of being "insiders" in one of the world's greatest design trendsetters. A Canadian presence is particularly evident in Tokyo's information and communications technologies hub, where Canadian software firms are increasingly matched with Japanese hardware expertise.
With Japan growing again, Canadian companies and researchers cannot afford to be complacent about its enormous potential. There are many exciting opportunities across a broad range of activities, including agri-food, information and communications technology, advanced materials, environmental, and aerospace and defence sectors. Canadian firms can leverage Japanese partnerships - in the lab and in the marketplace - to achieve higher levels of innovation, productivity and competitiveness. Canada and Japan can also act as mutual gateways to North America and to Asia, especially as Canada's Asia-Pacific Gateway continues to make headlines and build confidence on both sides of the Pacific.
While Japan remains a complex and challenging market to penetrate, well-prepared Canadian companies can reap rich commercial rewards with a bit of patience and vision.
With representatives in Tokyo, Nagoya, Hiroshima and Sapporo, Canada's Trade Commissioner Service is on the ground where it counts most in Japan to assist Canadian businesses in exporting to this lucrative market.
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