It's a familiar tale for those interested in Japan. On one level Japan is a great land of opportunity. On another, it's a continually frustrating market beset by a lack of transparency on many levels.

Standard & Poor's Fund Research has carried out a comparison of investment returns from local Japanese managers compared wih UK-based managers. It shows that the average UK based manager has outperformed in four of the past five years, the exception was in the most recent 12 month period. However, this relative outpeformance must be put in the context of negative returns all round. The average local manager has returned -24.9% over five years, while the UK-based manager has returned -22.4% in sterling terms. The index return for the period was -30.7%.

Fund Research concludes that in a bear market there is a tendency for those closest to the market to over-engineer their stock-picking in response to anxiety. Those managing Japan equities outside the market's opening hours can have an advantage of being able to more accurately gauge the longer term direction of the market."

From its combined list of 197 mainstream and 56 smaller companies funds with track records of more than two years, five offshore funds have achieved FR's triple A rating. They are GAM Japan and GAM Tokyo, Mercury ST Japan Opportunities, Schroder IS Japanese Equity and Schroder Japan. Martin Currie's Japan Investment Trust is also rated AAA. Other groups rated in AA and A include GT, Morgan Grenfell, HSBC and Newton.

Fund Research notes that fund managers have become more critical and are now concentrating funds in well-managed companies with good disclosure, cash flow and return on equity. The average number of holdings on mainstream funds has fallen from 74 to 59 and the concentration in the top 10 holdings has increaed. There has been a marked shift from the traditional top-down to bottom up in view of the market's growing appreciation of fundamental value.

The lack of trust in domestic Japanese institutions is borne out in a report by Nikkeisha showing that Japanese investors prefer foreign financial institutions to Japanese firms by a margin of four to one. The issue of trustworthiness is central to this. Martin Armstrong, an economist with Princeton Economics Institute says, "Over the next four to five years, I see a continued net capital outflow from Japan. Of course, there will be oscillations. However, going into the 2003 period we see a tremendous amount of capital migrating out of Japan. "From the US perspective we have institutions asking about the timing for bottom fishing in Southeast Asia. When it comes to Japan, we have not received so much as one inquiry. Everyone is praying that the Nikkei will at least reach the 26,000 level so they can sell and never touch it again. This is exactly why the Nikkei will not go up. Everyone is a seller.

"If something doesn't happen soon, then the low in Japan will be postponed into 1999. If there is a rally in 1999 and these issues are still not resolved, then the low will be extended into 2001." Richard Newell"