I'm betting on Japan. I call Japan an attractive market but I am not heading back into 1990 when the yen and the Tokyo exchange reached ridiculous highs. But there really are improvements in both the economy and the corporate side in Japan. Morgan Stanley says that while Japanese companies continue to lag in terms of return on equity, the gap since 2012 is now half as bad as before, at 9.8% vs 11% for the rest of the world. And it is closing fast.

The main reason is that corporate taxes were cut and interest rates fell. But there also was corporate initiative at work: controlling costs and maximizing the use of assets. This week's Economist spells things out.

The economy is healthy and contrary to myth, deflation has ended. Unemployment is now 2.3% and there are more vacancies than job-seekers. Moreover, another myth has bitten the dust: Japanese women are now more likely to be in the workforce than American ones! Japan's per hour output is also among the highest in the developed world, according to the Conference Board.

While corporate Japan is still not exactly shareholder friendly, most companies now have independent directors and ladies on their boards. The habit of holding many shareholder meetings on the same day is coming to an end.

The demographics are still negative, with the developed world's largest aged population, although other countries (including the US) are catching up with geriatrics. As an early senior economy, Japan has a lead in expanding into foreign solutions, notably its major neighbor, China and other Asia sites. This is a strategic choice, because of a declining Japanese workforce. So too is automation, a Japanese sector I dote upon. Both these trends should support higher stock prices in Tokyo.

More on this starting with a half year report from one of our Japanese companies emphasizing the new Japanese expansion and the focus on the aged, plus news from other firms from our Japanese stock picks.

Japan Stocks

*The H1 reporting Japanese company is Eisai Co Ltd (ESALY), whose Nov. 1 results weren't reported here. I worked hard to understand the mistranslated English version of ESALY's conference call to make sense of the outlook. There are two key takeaways. First Eisai is a partner of other drug firms like Merck, Biogen, Purdue etc in R&D and it gains return on equity and free cash flow from their reimbursements. Secondly, it is a leader in providing drugs for Asian markets, notably China. This week the ribbon will be cut on a plant in Suzhou (China) which when fully operational will have as much production capacity as its main Japanese plant in Kawashima.

Focusing on these big picture matters helps overcome the total confusion about its phase II trials of BAN2401, and BACE1, for treating Alzheimer's disease, a problem in aging Japan and elsewhere. The results of the trial targeting beta amyloid proteins which began in 2014 are inconclusive except for people with a genetic factor ApoE4 which the trial (with Biogen) appears to help, slowing the decline in neurological acuity. The vast majority of Alzheimer's sufferers are not ApoE4 carriers. My own view is that every little bit helps but after this reports came out last month, ESALY stock lost 5.7%. There are other proteins at work in Alzheimer's and nabbing one may open the door to others, I think.

In other areas like cancer, hepatitis B, and circadian rhythm disorders, in-house research is paying off. Thanks to cross-licensing, ESALY in H1 achieved its first double-digit return on equity in 5 years. It also earned ¥45.4 bn in free cash flow, covering its debt and ¥150 dividend several times over. This is a very solid return. 

*Abhimanyu Sisodia writes from India about Nintendo, a stock he dotes upon which has fallen badly since we bought it at our India reporter's urging (and skepticism from Chris Loew in Japan). As our youngest reporter, Abhi dominates the youth electronics space. He writes:

Nintendo fell on good news. Its flagship product, the Switch, is far from hitting its full entertainment potential and rumors today about an upcoming Youtube app are good news not bad. A handheld Switch offers a high-quality screen but has insufficient links to available diverse entertainment. I watch Netflix or Amazon Prime on a Sony PS4 but until now Youtube was not compatible with the Switch. Now kids who are too young to have cell phones will want to get a Switch. The YouTube rumor is not wild as both WiiU and SDS Nintendo products had Youtube apps. The launch may take place as soon as this month.

*Japanese industrial robotics maker Fanuc is in the doghouse, down 2.54% in Tokyo. FANUY is an obvious way to replace strong young men in making things like autos and other factory goods. Moreover, people do not fear job losses from automation in Japan. It rose 1.1% so far here on Monday so I am not the only fan of Fanuc. 

*NTT Docomo, DCMYY, a telco, reports Thursday. It is down because it cut its cellphone rates by 40% to force its smaller competitors to follow suit at the behest of the government. I should gain market share from this wager.  

*Toray, TRYIY, a conglomerate with good governance by Japanese standards, reports Friday. It makes materials and textiles, carbon fiber, water treatment and de-chlorination membranes, air filters, and chemicals in Japan and elsewhere for meeting performance needs. It counts as a green innovator. It is also running FDA phase I trials now for idiopathic pulmonary fibrosis and makes contact lenses and balloon catheters and blood purifiers as well as diapers for seniors. It also makes lightweight textiles for saving energy in planes and autos.