For decades, investors have wagered that Japan’s sluggish economy and stock market would gain traction, always with disappointing results. As of September 25 this year, the Nikkei 225 Index was still about 40% below its record high of more than three decades ago, in December 1989.
That hasn’t deterred—and actually has encouraged—the bargain-hunting Warren Buffett, whose Berkshire Hathaway this year poured $6 billion into stocks of five major Japanese industrial companies—Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo. It’s Buffett’s first major foray into Japan, whose stock market is especially cheap this year relative to the US, with an average price-to-earnings ratio (P/E) of 19 compared with 25 for the S&P 500. Encouraging signs: The Bank of Japan expects the country’s GDP growth to reach 3.3% in 2021, the highest since 2010. The Japanese government has provided more economic stimulus than the US as a percentage of GDP…has contained the coronavirus pandemic more effectively…and former Prime Minister Shinzo Abe’s successor, Yoshihide Suga, is likely to continue to reduce regulations and taxes
How to invest: Neena Mishra, CFA, recommends an exchange-traded fund (ETF) offering broad diversification—Franklin FTSE Japan ETF (FLJP), with the lowest expense ratio in its category, just 0.09%, and holding about 500 stocks, including those Buffett has invested in.
Mutual fund analyst Bill Rocco says more aggressive investors should consider actively managed funds with more focused portfolios. He favors Matthews Japan Fund (MJFOX), which invests in 50 large-cap growth stocks. If you want smaller, more domestically focused Japanese companies, he suggests T. Rowe Price Japan Fund (PRJPX), which invests in 60 companies, with more than 40% of its assets in small- and mid-cap stocks.