The last time Asian retail investors were excited about the prospect of investing in the Japanese stock market was at the end of the last century. At that time the Nikkei 225 bounced from below 13,000 in 1998 to a high of almost 19,000 in the following year.
In particular, smaller companies rocketed due to a widespread belief that the technology revolution that had propelled global markets would help Japan finally to overcome the structural impediments that had dogged its stock market for almost a decade. New companies and new entrepreneurs were seen as revolutionising Japan’s sclerotic corporate structure. Mutual funds investing and managed in Japan by global firms proved popular, as did those Asian regional funds with a meaningful allocation to Japan.
Historically for those investing in Asia Pacific, the big asset allocation decision had been the relative weighting between Japan and non-Japan Asia. More than anything else this key decision determined the performance of the Asian deployed assets. Different underlying factors drove the performance of the two asset classes respectively, and timing an allocation between Japan and non-Japan Asia was critical. Relying on market capitalisation to determine the relative asset allocation was insufficient.
