Renowned German investor and author Max Otte has been buying up cheap Japanese equities on the conviction the country's stagnating economy will see a revival.
Otte, author of 'Der Crash kommt' [The crash is coming] which was first published in 2006, manages the PI Global Value equity fund and upped his near zero exposure to Japan by nearly 7% this year. The holding includes names that are both domestic and export-orientated.
'Japan is very, very cheap now. Price to earnings are lagging but price to book is attractive,' he told Citywire Global.
'Japan has been stagnating for twenty years now. Nothing lasts forever and you have to start at some point. We've dipped our toes in and plan to continue to add.'
Dax could reach 10,000
Despite its most recent rally, Otte said that the Dax still has considerable upside potential and he has a large allocation towards German companies.
'The Dax trading at 8,000 points today is not the same as the Dax in the year 2000 where then it was overpriced by 100%. I still think it has upwards potential and I wouldn't be surprised if it reached 10,000 over a longer period.'
Large cap German firms supermarket RWE and energy firm EON are among the names most recently added to the Global Value fund.
German small and mid-cap 'Mittelstand' companies, which make up a large part of the Dax, are, however, moving towards full valuation, according to Otte.
'In the fall of 2008, you could buy almost anything in Europe, excellent business models and excellent companies and they all got hammered. Now the markets don't differentiate so much by market cap but by quality and so we have quite a few Mittelstand companies that are relatively fully valued.'
Holland and Austria are two other markets Otte sees as overlooked by investors and also hold opportunities for value investors.
Otte's fund can invest across global equity markets and yet the value investor still recommends a gold holding of 10-15%.
Warren Buffet's Berkshire Hathaway makes up over 4% of the fund and Otte describes this holding as a cash substitute.
'We have held this position since Buffet promised a share buy-back if the share price falls below 10% from the current price,' he said.
Otte's PI Global Value fund rose 41.5% in the last three years. The MSCI World TR index rose 39.6% in the same period.