For the last few days, as Jonathan Allum of KBC puts it, a rally in the Japanese market has looked about as likely as an alien invasion. But last night the Nikkei finally rallied, putting on 2% by the end of the session.
So can the market down 10% already this year have finally hit bottom?
It’s possible. Allum points out that foreigners are now more underweight in Japan (ie they hold fewer Japanese stocks) than they have been since May 2003. And that was a fabulous time to buy in - the Nikkei then rose nearly 60% in under a year. There is good reason to think this kind of thing might well happen again.
Why? Because Japan’s stock market is cheap on absolutely every possible measure. Because its banking sector has little exposure to sub prime debt. Beause it has an undervalued currency. And because almost uniquely among developed nations it doesn’t have a plummeting property market.
And for those who like anecdotal contrarian signals here’s something else that might offer some cheer. Usually, says Allum, the BBC feature three markets in their early morning market round up: the Dow Jones, the FTSE 100 and the Nikkei 225. But last Monday the Nikkei was gone, replaced by the Hang Seng. The Nikkei was added in back in the late 1980s just before Japan’s market crashed into a 15 year bear market, says making it a ‘respectable contrary indicator’ and also suggesting (assuming the deletion wasn’t a one-off editorial error) that things might soon move by an awful lot more than 2%, and hopefully in the right direction.