First Eagle's Abhay Deshpande: Japanese stocks are the way to go

As the rest of the investment world gravitates toward red-hot emerging markets, Abhay Deshpande, co-manager of First Eagle Global Fund, is asserting that Japan actually may be the place to invest. Compared with U.S. and European equities, “Japanese stocks appear to be much cheaper,” he said in an interview, adding that he suspects the Japanese markets hit their bottom in March. In 1988, Jean-Marie Eveillard, then the lead portfolio manager of the fund, sold out of the Japanese market, Mr. Deshpande said. Now the fund has separate 25% weightings in Japanese, U.S. and European stocks. Japanese companies such as Shimano Inc., SMC Corp. and Fanuc Ltd. have “solid balance sheets, massive cash and good management,” Mr. Deshpande said. “You get world-class franchises, but since they’re listed in Japan, you can get them at a discount,” he said. That’s because Japan, still in a 20-year bear market, is widely overlooked, Mr. Deshpande added. First Eagle Global’s managers tend to focus on industrial stocks. Unlike companies in the United States and Europe, where cyclical companies are saddled with a lot of debt, in Japan, “there’s not that much debt. So a cyclical company can wait out the storm [until] things get back to normal,” Mr. Deshpande said. In addition, many Japanese firms are well-positioned to sell into the growing Asian markets, he said.