Land of the Rising Sun

We note that today's 10% rally in U.S. markets started in Asia with Hong Kong's Hang Seng up more than 14% and Japan up around 6%. Recent articles in Bloomberg have noted that the price-to-book ratio on the Topix in Japan is 0.83. We want to buy this market. If one is a believer in value we should own Japanese stocks at these depressed valuations.

We are unconcerned if the market goes up or down another 10% before we get in. Normally the knock on Japanese stocks is that the P/E ratios are too high and dividends too low. This is no longer the case. We view the market as a value investor's paradise. We recommend EWJ (i Shares japan etf) for large caps and JSC (a small cap etf). Additionally, Sumitomo Corp has been crushed as commodities and Japan have gone down. The ticker is SSUMY. The stock trades at 3x 2009 and 2010 P/E and yields 6% using information from Reuters as of October 28, 2008. It sells fo under book value.

Rather than try and call a bottom on emerging markets, Nasdaq, gold and small caps, current Japanese valuations make us drool. We will buy at less than book value and high single to very low double digit P/Es. Investor's may own them for a trade or long-term, but we like the market.

http://www.reuters.com/finance/stocks/overview?symbol=8053.T