There is a strong potential for earnings recovery for companies in the Japanese market, an expert has predicted.

There is a strong potential for earnings recovery for companies in the Japanese market, an expert has predicted.

John Stewart, manager of Gartmore's Japan Absolute Return Fund, has told hedge funds he is confident corporate earnings will benefit from a cyclical recovery.

He said that the last reporting season highlighted many companies' progress in cutting costs during the recession, with a drop in valuations relative to assets.

"The third quarter earnings season showed notable growth in recurring profits from a relatively small rise in revenues. We feel the operational gearing reflected in these numbers points potentially to substantial growth in profits into the year to March 2011," he stated.

Mr Stewart claimed that this is not necessarily reflected in today's valuations, meaning opportunities exist for hedge funds looking at Asian markets.

Jan de Brujin, head of Asian equities at Gartmore, recently advised companies to consider the attractive opportunities offered by markets in this region.