Japan as a hedge fund opportunity

Japan has become a very attractive place to invest in recent weeks. It is something akin to a great river with a lot of fresh meat floating about, and as yet relatively few piranhas benefitting from that environment.

Japanese stocks have been on the upswing.  Back in September, when former Prime Minister Shinzo Abe became again the leader of the opposition Liberal Democratic Party, the Nikkei 225 was at 9,000. It began a steady rise in mid-November, after then-Prime Minister Yoshihiko Noda dissolved the Diet and called for an election. The LDP won a majority in that election, in mid-December, and Abe accordingly became the new PM. The bullish move in the stock market began while those events transpired.

On the day Abe became Prime Minister, the Nikkei 225 closed at 10,230.36 About a week into March, the index passed 12,000, and by the end of March it was flirting with 12,500.

GFIA, in its Research Insights newsletter for March 2013, highlighted Japan in a detailed “quant research piece.” GFIA contended that “from an allocator’s perspective, this is a market representing the world’s third largest economy, arguably its most innovative economy with more than 3,000 listed stocks, of which, conservatively, there might be sell-side coverage of 25% and a minimal community of alpha seeking investors.”

The newsletter classified Japan-focused hedge funds into three groups: Long/short, long-only and market neutral. It is an unequal division: The long-short class dominates, as 69% of the whole.

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