Japan: The stock market where fundamental research goes out of the window

The yen gained in two distinct phases this year, both with little to do with Japan: one was due to dollar weakness in January, while the other was because of the global equity rout the following month

Call it the dilemma of the Japanese equity investor.

By all traditional methods of analysis, the country’s shares should be thriving. Valuations are low, profits are strong, and shareholder returns are higher than ever. And, that's even before you add unprecedented stimulus by the Bank of Japan, and an economy cruising to its longest run of growth in decades. For investors who did the research, being a bull seemed the logical choice.

And once again, they were wrong. The benchmark Topix index is slumping: Japan is the worst-performing developed Asian equity market this year. That's largely because of the country's