Chances for stock pickers as Japan rebounds

Japanese womenJapan's economy rebounded with strong growth in the third quarter after three quarters of decline, evidence that the country is recovering from damage inflicted by the earthquake and tsunami that hit in March.

But the country's stock market is cheap, in historical terms, and some analysts say there are opportunities for stock pickers to find undervalued companies.

“On any number of valuation metrics, both spot and cyclically-adjusted, the Japanese equity market is trading at historic lows,” said June Yon-Kim, manager of the Fidelity Japan Fund. He also said that a majority of Japanese sectors are the cheapest globally.

There are still headwinds such as a strong yen, which impairs sales for export-oriented companies, and recent supply chain disruptions caused by flooding in Thailand. Japan will also be affected by slow GDP growth in Europe and the United States. However, analysts say select companies have good growth prospects.

“Overlooked markets such as Japan today tend to offer some of the best investment opportunities,” said Soeren Addicks of Fidelity's Japanese equities team. “Backed up by a financial system that is much more resilient than that of its Western peers, select Japanese corporations offer extremely attractive value in terms of expected free cash flows, already strong balance sheets and very under-appreciated earnings power.”

The Japanese economy grew 1.5% in the third quarter, according to figures released by the country's Cabinet Office – equivalent to 6% annual growth.

©2011 funds europe