Welcome to Thoughts on the Market.

I'm Andrew Sheets, Chief Cross Asset Strategy

from Morgan Stanley.

Along with my colleagues bringing a variety of perspectives,

I'll be talking about trends across the global investment landscape and how we put those different ideas together.

It's Friday, October 18th at 2 p.m. in London.

Over the last several months, we've been cautious on the market,

and many of my podcasts have focused on what we don't

like about current conditions. So this week I'd like to do something different. I'm going to focus on a

market that we do like. That market is Japan where we think the country's stock market, currency, and even its government bonds stand to outperform global peers.

Let me start with foreign exchange and the Japanese yen.

One of the greatest challenges facing investors at the moment is the fact that many assets

that have historically helped provide defense to portfolios, such as government bonds or high-quality

stocks, are extremely expensive relative to history.

A pretty common and very reasonable question from investors is

are there any defensive assets out there that still trade at a reasonable price? We think the Japanese yen is one of those

rare things. It's been a very consistent diversifier over time, repeatedly moving in

the opposite direction of broad equity markets, especially in times of stress.

And valuations look very reasonable.

With its real effective exchange rate,

that is the price of goods in Japan, relative to similar goods of its trading partners,

about 15% below its long-run average.

...