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Emerging markets are down a lot this year and Europe is still struggling. "Japan is in the best shape in the world," says Campbell Gunn, portfolio manager of the T. Rowe Price Japan fund (PRJPX). He says Japan is "pulling out all the stops to recover and the valuations are still attractive." At this point, everyone is waiting for the end of July, when Japan's parliament holds elections for its upper house. If Abe's party wins, he'll be able to push through all of his policies. Dodson of Auerbach Grayson says if investors want Japanese stocks they should focus on domestic asset plays, companies that aren't heavily influence by events outside of Japan. He likes real estate, construction, railroads, and domestic retail such as Mitsubishi Estate (MITEY), East Japan Railways (EJPRY) and Seven & I (SVNDY). Also, small-capitalization stocks generally outperform given their domestic bent, he says. Martin Jansen, the lead portfolio manager for the ING International Value fund (NIIVX), also likes domestic retail and financials, and boosted his fund's Japan weighting to 21 percent over the past 7 months. If you want to get in on Japan's potential turnaround, Japan funds are the way to go. Even with the recent bear market, Japan funds declined 1.86% in the last month, that's less than any other international stock sector fund, according to Morningstar. They still lead that group year to date. But it's a turnaround story. Investors have lost money in Japan over the last decade, so you'll want to limit your stake and keep tabs of the developments, as Abenomics is an unfolding story. Although many say this is indeed a buying opportunity, there are some caveats. John Browning, the executive director of Incapital's unit trust division and a creator of international portfolios says historically, throwing money at a problem doesn't necessarily work. Japan's stimulus may result in inflation without real economic growth. What's more, Japan also faces increased competition in terms of innovative new products from China and other emerging market countries.
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