A Very Wise Eastern Philosophy

Last July, as the Nikkei stock average plummeted and fears of a financial meltdown spread, a news item landed on Elizabeth J. Allan's desk at the New York offices of the mutual-fund group of Scudder, Stevens & Clark Inc. The Bank of Japan, it said, was lending to troubled banks at low interest rates. "It was one of those moments when something goes off in your head," recalls Allan. "That was the signal they were going to draw the line" to keep things from deteriorating further.

The central bank's move was also just the pretext that Allan needed to start shoveling cash into Japanese stocks. Not that she needed much of an excuse. A Scudder principal who manages the 31-year-old Japan Fund's $514 million in assets, Allan had ridden the Nikkei all the way down from its high of 38,916 in 1989. Still, Allan, 40, never lost faith. "What makes a successful economy?" she asks. "One is a highly educated population. The other is cash. Japan has both."

With stocks now rebounding past 20,000 as Prime Minister Kiichi Miyazawa launches his second spending program to ease Japan's recession, Allan's buying spree has proved to be deft market timing. Since last August, when the Nikkei bottomed out at 14,309, the Japan Fund's net asset value (chart) has soared 45%, to $11.30 per share. While the Nikkei's recovery has lured many money managers back to big multinationals, Allan favors "blue chips of tomorrow," lesser companies that should profit from an expected rise in consumer spending, expansion of trade with Asia, and a boom in telecommunications.

Indeed, while Allan long has owned shares of Toyota Motor Corp., her largest holding is Aoyama Trading Co., a men's clothier that has adopted U.S. discounting techniques. She also likes Nichiei Co., a short-term lender to small companies whose conservative standards helped it avoid the problems plaguing big banks.

`SO NICE.' Allan's interest in Japan is no surprise. A "language freak" who cottoned to Asian affairs at Colby College and spent her junior year in Osaka, Allan earned master's degrees at Indiana University and Princeton before joining Nomura Securities International Inc. in New York. That led her to Scudder, which sent her to Tokyo to study small companies. She quickly developed ties to video-game maker Sega Enterprises Inc. and other growth companies. "They were so nice," she says. "They had never seen a Japanese analyst, much less a foreign female one."

What's ahead for the Nikkei? Allan says it might retreat briefly. But her long-term outlook is undimmed. Last summer, Allan opened Japan Fund accounts for her two daughters, aged 3 and 7. Is she still comfortable with the move? "I'm very happy," she grins. So are her shareholders.