Japan has just experienced the political equivalent of an earthquake. The ruling Liberal Democratic Party, which had held power almost uninterrrupted for 50 years, was swept away in a landslide. The incoming Democratic Party of Japan has no experience of government and is a new broom in every sense.
At the same time Japan is just emerging from a severe recession and moving back onto a growth tack.
Some commentators have taken the combination of the two events as a reason for investing in Japan,. They argue that a growing economy, coupled with a fresh new government that is more focused on the consumer, could provide a useful stimulus for a stock market that has been battered by the global downturn.
The problem with these expressions of hope is that we have heard it all before. Japan’s Nikkei index has spent the past 20 years falling back from its peak of nearly 39,000 to its current level of a little over 10,000. Yet for most of that time commentators have been telling us that some new measure would send the market bouncing back towards its former dizzy levels. At various times the magical ingredient was going to be tax cuts, infrastructure spending, new technology or the emergence of China as a new export market.
The latter point is certainly one to watch, but, so far, none of these supposed saviours has provided much joy for beleaguered UK investors in Japanese funds. The funds have, on average, failed to make money for investors over one, three and ten years. Over five years they have produced a derisory return of 1 per cent.
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There are honourable exceptions. Stephen Harker, of GLG Japan Core Alpha Fund, has consistently beaten most of his peers and made money in difficult times over the past five years. He also puts forward a compelling argument for the viability of the Japanese, as opposed to the western, model of doing business.
The brutal reality, however, is that Japanese funds as a whole have underperformed UK, US, European and Asian funds over three, five and ten years. It is a telling comment on the difficulty of making money in the Japanese stock market that Neptune Japan Opportunities Fund - the best performer by a mile over one, three and five years - has made a substantial amount of its money by going short on Japanese shares. In other words it has been betting that the market will go down, rather than up.
The manager is now reported to be more optimistic about the market but the very fact that shorting the market has proved the most profitable tactic in the past does not exactly inspire confidence for the future.