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Japan offers the contrarian trader a wealth of opportunity

GIVEN how badly export-oriented Japan has suffered from the financial crisis and the subsequent drop off in global demand, you might think that investing in Japanese equities would be one of the least successful trading strategies around right now.<br /><br />But in fact, a number of analysts have started turning bullish on the Japanese stock index and one has even called it a &ldquo;forgotten market&rdquo; awash with opportunities for slightly contrarian investors.<br /><br />Last week Hiroyuki Arita, the head of investment management firm BlackRock&rsquo;s Japanese unit, said Japan&rsquo;s stability and technology make its equities an attractive opportunity and that a further economic recovery could usher in more client flows from abroad.<br /><br />And Morgan Stanley analysts say that many investors are concentrating on the next market move and depending on their outlook, are either choosing very volatile or very defensive stocks to trade. This means that they are missing opportunities in interesting investments in other areas, including Japanese equities.<br /><br />&ldquo;Investors are too focused on the macro market direction debate, leaving an attractive and neglected middle ground of investment opportunities,&rdquo; they write in a research note.<br /><br />And last week the Japanese smaller companies fund came second in research firm Lipper&rsquo;s weekly performance data, with a return of 0.61 per cent. This may not sound like much, but it was the highest of any pure equity fund.<br /><br />With such key companies favouring Japanese equities, contracts for difference (CFDs) traders looking beyond UK and US equities could consider the Nikkei 225 and its components.<br /><br /><strong>POOR PERFORMANCE</strong><br />Unsurprisingly, the most popular trade is the Nikkei itself. While the index has risen along with other world equity markets, it is worth remembering that Japan&rsquo;s poor performance in the 1990s means that the index has suffered much more in the last 20 years than the FTSE 100 and the Dow Jones Industrial Average.<br /><br />CFD traders looking to capitalise on short-term moves during the summer months will be pleased to hear that Japanese equities and indices are among the most volatile of all major markets.<br /><br />Most CFD providers will offer either rolling daily or futures contracts for the Nikkei 225, although the spreads are more favourable when the stock market is open &ndash; the early hours of the morning or late at night British time.<br /><br />IG Markets offers 24-hour trading on the Nikkei 225, starting at 11pm UK time on Sunday and finishing at 9.15pm on the following Friday. The spread during Japanese market open is 20 basis points and the margin requirement is $2,500.<br /><br />If you want to be more specific and choose individual Japanese equities for your CFD trading, then there are plenty of popular household names to choose from, such as Sony, Nissan, and Toshiba.<br /><br />However, these are typically highly dependent on consumer spending, both domestic and overseas. While this has fallen off a cliff , CFD traders should note that in July the Japanese government upgraded its economic assessment for the third month running. <br /><br /><strong>CONSUMER SPENDING</strong><br />As part of the report, the government again raised its view of consumer spending as stimulus plans boost spending on low-emissions cars, flat-panel televisions and other appliances that use less energy.<br /><br />Data released yesterday showed Japanese consumer confidence improved in June, rising to 37.6 from 35.7 in May. Companies&rsquo; capacity utilisation also rose in May, indicating that the world&rsquo;s second largest economy may be past the worst recession since the Second World War.<br /><br />And with emerging market Asia widely expected to be the first to exit the global recession, sentiment in Japan&rsquo;s closest export markets will be looking up. While it may seem expensive to trade CFDs on Japanese equities, the reality is somewhat different.<br /><br />Granted, the spreads and margins will be greater than the likes of Tesco and Vodafone, but with CMC Markets requiring a margin of only 6 per cent on Japanese equities. CFD traders might decide that this is as good a time as any to remember the forgotten market.