Where are the 'cheap' valuation opportunities in Japan?

Japan is out of favour, especially with foreign investors, and the market has sold down amid rising global macroeconomic concerns and volatility in returns. In particular, investors have shunned stocks where earnings are perceived to be cyclical or volatile in the shorter term.

But within the Japanese market, rising risk aversion is driving valuations to both extremes of expensive and cheap. A contrarian focus on the most mispriced Japanese stocks offers significant opportunities for the patient. On the one hand, the market's risk aversion is driving a strong preference for expensively valued defensive stocks, such as consumer staples, pharmaceuticals and rail companies. Defensive stocks are more expensively valued than any time in the past 20 years.   Investors should start by focusing on the extremes of cheap valuation where there are plenty of opportuniti...