Japan poised to benefit from global inflation
Of all the global markets, Japan is the one world market poised to benefit from the one thing that is wreaking havoc everywhere else – inflation.
Of all the global markets, Japan is the closest to a "classical bear market trough", as Morgan Stanley's Teun Draaisma puts it. Its p/e is well below the long-term average and it also has the lowest price/book ratio of the major markets, at 1.5 times. Better yet, it is the one world market poised to benefit from the one thing that is wreaking havoc everywhere else inflation.
Japan "benefits totally" from the return of rising prices, says Christopher Wood of CLSA. Why? Inflation changes expectations. For years, the Japanese have behaved as though prices could only fall, and have refused to borrow money. After all, deflation makes your debt rise in real terms, so why buy now if you know prices will be lower in a year's time? But with core inflation at its highest for ten years, it's starting to make sense for Japanese consumers to borrow money to buy goods right now. And after more than a decade of misery, Japanese banks, unlike their Western peers, have the money available to lend. The simplest and cheapest way into the market is via an exchange-traded fund (ETF), such as the broad exposure (350 stocks) iShares MSCI Japan Index Fund (US:EWJ).
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