1 April 2006

Japanese Equities: Ready To Go Again?

BCA Research - Independent Investment Research Since 1949: "Japanese equities have regained strength and appear poised for another leg up.

Strong trading in recent weeks has driven the Topix back above 1700, a very important technical level that has capped all of the cyclical rallies since 1992. We think the market will ultimately punch decisively through this resistance, clearing the way for sizable new highs. The Japanese system is still awash with liquidity and the central bank is not ready to spoil the party until next year, at the earliest. The recovery in the economy is broadening out rapidly. Equity valuations remain reasonable, particularly when adjusted for ultra low discount rates. Finally, we continue to believe that Japanese stocks are a “mean reversion” story based on longer-term GDP trends, which imply substantially more upside. The risk is that most cyclical momentum measures remain overbought, but this is typically the case during a bull market. "

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