Buying Japan's 2008 Story

Will the sun shine on Japanese stocks in 2008?

"Japan could surprise investors next year," says Alex Tedder, portfolio manager for the $2.8 billion TWIEX American Century International Growth fund. "Pricing power, which has long been dormant, is finally returning."

Considering the Street is littered with international fund managers who have unsuccessfully tried to call the turn in Japan, Tedder's call is a relatively bold one. The popular iShares MSCI Japan Index ETFEWJ is down 4% in 2007, once again underperforming the benchmark MSCI EAFE foreign stock index.

Tedder's fund, on the other hand, is up 15.4% year to date, and has risen 20% annually over the past three years, beating its benchmark by 50 basis points. It currently holds 15% of its assets in Japanese stocks, compared with 20% for the MSCI EAFE index. Tedder intends to increase his Japanese position, but stresses that selectivity will be the key to success.

Japanese Stocks Set To Surprise In 2008

"There is no single Japanese sector that is a screaming buy," says Tedder. "We have had great success holding NintendoNTDOY.PK, and we believe that stock has further to go. We also think Toyota'sTM" U.S. problems are overshadowing the rest of its international business."

Like many international stock fund managers, Tedder's performance has been enhanced by the rise of foreign currencies vs. the U.S. dollar. Says Tedder. "We are not currency experts, so we do not hedge."