At today’s valuations, we believe that Japanese equities offer an exceptional investment opportunity.
Although Japanese stocks significantly lagged global markets in 2011, due in part to the effect of last year’s earthquake, this has made the Japanese market available at historically attractive prices, as can be seen in the chart below.
Although the global economy remains fragile, particularly in light of the European debt crisis, we expect Japan’s economy to outpace most developed markets in the coming years as it benefits from a pickup in post-quake reconstruction efforts and the resilience of neighboring Asian economies. More importantly for equity investors, we expect corporate earnings to rebound strongly as well.
Within the Japanese market, where stock valuations remain well below long-term averages in general, value stocks are particularly attractive. Because of anxiety-driven, indiscriminate selling over a significant part of the last several years, many companies with solid long-term earnings power and healthy balance sheets are available at compelling valuations. We think many of these value stocks are well positioned to benefit from an eventual easing in the market’s heightened anxiety.
As shown in the chart below, history shows that value investing has been highly effective in Japan, outperforming strategies that emphasize growth. Since 1971, the most attractive Japanese stocks (ranked according to valuation measures like price to forward earnings) have outperformed the least attractive by a wide margin—far wider than the global average.
In short, we believe that low valuations in today’s market, particularly value stocks, offer an excellent opportunity for global investors. 
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The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AllianceBernstein portfolio- management teams.