Equities markets/corporate profits paradox ripe for correction in 2010

In 2009, we felt quality Japanese companies were too cheap and as we start 2010 our view has changed very little.

In fact, we are more positive about the prospects for Japanese equities now, because we see a market in which stocks are still significantly undervalued despite improved profits and a stronger economy. While we do not expect the pace and strength of the economic recovery to be exceptional, further gradual improvement should be sufficient for corporate earnings to maintain their upward trend. Having come out of recession in Q2 2009, the economy is being supported by a manufacturing sector that adjusted inventory levels quickly and effectively. For Japan’s large exporters, this helped to l...