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Land of the Rising Sun and Sun Sets

The expression “land of the rising sun” refers to Japan because it is the easter-most country in mainland Asia and when the sun rises, it is the first country visible from the vantage point of China.

Investors avoided Japanese equities soon after the Japanese price bubble burst in early 1992. Many blame the Japan asset bubble on spiraling asset inflation, tight monetary policy by the Bank of Japan, and the simultaneous collapse of Japanese banks and real estate markets.

Japan soon entered into an economic stagnation cycle throughout the 1990s. By the early 2000s, China took over the mantle as the world’s new mass-market goods producer, compounding the structural problems in Japan.

So why invest in Japanese equities?

Despite the demise of Japan, it remains the third-largest economy in the world and one of the largest pools of liquid equities (over 3,000 stocks).

One of the reasons cited for investing in Japanese stocks is it is undervalued, at least compared to other developed equity markets.

The Japanese equities market continues to underperform from an evaluation basis, specifically on the return on equity (ROE) metrics. However, if Japan can avert a recession, there may be attractive buying opportunities in Japanese stocks for patient long-term investors.

The Nikkei 225 is a price-weighted equity index of the 225 largest stocks in the Tokyo Stock Exchange. The three biggest sectors in the index are Industrials, Information Technology, and Healthcare. The largest Japanese companies by market capitalization include Toyota (TM), Sony (SONY), Nippon Telephone & Telegraph (NTTYY), Mitsubishi UFJ Financial (MUFG), Hitachi Ltd. (HTHIY), Sumitomo Mitsui Financial Group (SMFG), Keyence Corp (KYCCF), and Daiichi Sankyo Co. (DSNKY).

Europe comes from the Phoenician word EROB, referring to the area where the sun sets.

If the Eurozone market is to emerge as an equities leader, two of the largest countries, France (iShares MSCI France – EWQ) and Germany (iShares MSCI Germany – EWG), must participate in the next uptrend.

Eurozone countries that lagged behind their counterparts, including Italy (iShares MSCI Italy – EWI), Greece (Global X MSCI Greece – GREK), and Spain (iShares MSCI Spain – EWP), also need to break out as well.

Technically speaking, the two international equities markets, Japan and Europe, may emerge as new leadership markets in the next structural bull.

Below are various technical charts and analyses on MSCI Eurozone ETF (EZU) and Nikkei 225 (N225) to suggest it may be time to look at the overseas equities market again.

Although it may still be early in the cycle, investors need to monitor the technical developments as ignoring the emerging trends can lead to underperformance in global stock portfolios, at least over the long-term basis.

Source: Chart courtesy of

Source: Chart courtesy of

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