Funds: Why you should buy Japanese small caps

Now could be a good time to invest in Japan, and small firms particularly, says Henry Scott Stokes.

Last year Japanese small caps took a terrific drubbing. But this year, as hopes for economic recovery boost markets worldwide, fund managers such as Edwin C Merner of the $2.5bn Atlantis group of companies, and Curtis Freeze, who founded the $600m Prospect Co in the mid-1990s, have clawed their way back.

Japan isn't the only market to have rebounded this year. But there's a reason why now could be a good time to invest in Japan, and small firms particularly. On 30 August, voters ejected the conservative establishment from power, after a 50-year run during which the government had been closely tied to big business and to a vast bureaucracy. This 'iron triangle' of bureaucrats, business and politicians worked wonders for Japan in a distant high-growth era, but then acted as a severe economic drag.

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