7th May 2013 by Andrew Neligan

The Nikkei 225, the leading Japanese stock market index, is at a five year high and is following in the footsteps of the S&P 500 in the US and the FTSE 100 over here.

This is great news for anyone with pensions and investments, highlighting that stock markets do rebound despite the despair that was all pervading back in 2008 and 2009.

Investors have been frustrated by the Nikkei long before the 2008 downturn; it never seemed to show any signs of recovering from the “lost decade” (more than a decade in fact) when the country suffered a severe recession in the 1990s and the then Government was slow to react with any stimuli to kick start it again.

The recent positive growth is in response to aggressive monetary policy primarily in Japan but also in Europe and the US too. But does this mean everyone should pile in?

We are firm believers that if you are investing money you should ensure your portfolio is spread between the different asset classes and also geographically too but whether this includes Japanese shares will depend upon your investment objective, risk profile and investment term.

Japanese shares are known to be volatile; the rewards can be great but the potential for short term losses is too.

We grade our client risk profiles between one and ten, one being ultra cautious and ten being speculative.

Due to the volatility of Japanese (and other Asia Pacific and Emerging Market) shares we don’t allocate anything to the one and two out of ten profiles and increase this gradually to thirteen per cent at eight, nine and ten.

These allocations my change slightly as our house view changes each quarter but it will give you an idea.

As a guide you may consider investing in the Japanese stock market if the following applies:

-You don’t intend to use the capital in the short term (say, within five years),

-You wish your capital to work harder for you,

-Capital growth is a primary objective,

-You can accept the chance of capital losses in order to generate higher gains; either during the single years or that you may get back less than you invested even over the long term (it is still down 30% from it’s high point in 2000).

-It will form part of a diversified portfolio.

-You are not investing on past performance alone. In other words you are not putting all of your money into Japan as a result of the past five years performance.

-You actually need to expose your wealth to investment risk (cash can still be King despite the current derisory interest rates).

If you would like to discuss whether you should invest in the Nikkei 225 (as well as other global stock markets) please do get in touch .