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Why Dan Loeb loves Japan

May 9, 2013: 5:01 PM ET

Hedge fund manager Dan Loeb says Japanese stocks are cheap.

dan loeb

Dan Loeb

FORTUNE -- Dan Loeb, the $11 billion hedge fund titan, says he is betting on a Japanese rebound.

Speaking on Thursday at the annual SALT hedge fund conference, Loeb named Japan as the investment he is most excited about right now.

"We are extremely focused on Japan," says Loeb, who runs the Third Point hedge fund.

In a recent investing letter, Loeb mentioned that he was betting against the yen and had bought shares of a few Japanese companies. But on Thursday, Loeb made the case for buying Japanese stocks in general.

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Loeb said that he has seen a massive improvement in the Japanese economy since he started looking at it a year ago. While many people are focused on the fact that the Bank of Japan has embarked on a more aggressive version of the Federal Reserve's bond buying effort, nicknamed QE, Loeb said that's not the only reason to like Japan. He says the country's new political leadership is making changes that will make their economy more efficient and spur growth. Loeb believes that Japan's new Prime Minister Shinzo Abe will follow through on promises to make reforms that will change wages and bring more women into the workforce.

"It's the structural reform that we see that will be the big game changer," says Loeb.

Loeb said if value of the yen, which has been dropping lately, were to fall by another 10% that would provide a huge boost to Japanese corporate profits. What's more, Loeb said the Japanese market is cheap, trading at 13 times earnings, compared to about 18 for U.S. stocks.

"There's a possibility of a big rally, and it's not a bet you have to pay up for," says Loeb.

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And Loeb isn't the only noted investment manager who is talking up Japan. On Wednesday at the SALT conference, Bill Novogratz of Fortress Investment Group said he liked Japanese stocks because the Bank of Japan is doing "QE times four." Also on Wednesday, hedge fund manager Stanley Druckenmiller speaking in New York at the Ira Sohn investment conference also made the case for Japanese stocks.

Japan has been a frequent topic for global hedge funds managers this year. Not everyone is bullish. Late last year, hedge fund manager Kyle Bass, who became famous for betting against the housing market, has said that he is betting against Japan. He said he thinks the Bank of Japan's stimulus efforts will fail.

Along with Japan, Loeb said he was buying up mortgages and other bonds based on consumer credits.

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About This Author
Stephen Gandel
Stephen Gandel

Stephen Gandel has covered Wall Street and investing for over 15 years. He joins Fortune from sister publication TIME, where he was a senior business writer and lead blogger for The Curious Capitalist. He has also held positions at Money and Crain's New York Business. Stephen is a four-time winner of the Henry R. Luce Award. His work has also been recognized by the National Association of Real Estate Editors, the New York State Society of CPA and the Association of Area Business Publications. He is a graduate of Washington University, and lives in Brooklyn with his wife and two children.

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