The great sell-off and why the Japanese market trades like a penny stock

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Investors have to understand that ‘normalisation’ after the ‘lost’ decades is going to be painful

On the first full day of trading after the great Tohoku quake of 2011, recalls a browbeaten fund manager, the office was shuddering with aftershocks. The world’s largest nuclear plant, in Fukushima, was in meltdown and an explosion had blown its roof off. There was talk of evacuating Tokyo. Japanese stocks closed that day 6 per cent lower.

The cautious one will be that this past week has exposed the true face of an economy and a stock market that remains, in spite of some genuinely bright spots and well-conceived cosmetic efforts, quite ugly. Zombie companies were allowed to live too long. Improvements in governance, capital efficiency, diversity and professionalisation of management have come too late and too sparsely. Capital has been miserably misallocated.

 

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