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A woman passes in front of an electronic share price board displayed in the window of a stock brokerage in downtown Tokyo.KAZUHIRO NOGI

The selloff in Japan sent the country's benchmark Nikkei 225 down 10.6 per cent in overnight trading on Tuesday, marking its worst one-day decline since 1987. But some investors are taking a more upbeat view of the country as it wrestles to contain a massive economic and humanitarian disaster.

The iShares MSCI Japan exchange-traded fund , which tracks the MSCI Japan index, was down just 1.8 per cent in afternoon trading in New York on Tuesday afternoon, up from an 8 per cent loss at the start of the day. That strikes an intriguing contrast, and suggests that investors are positioning themselves for a rebound in Japan when markets open for trading on Wednesday, rather than more turbulence.

"Typically, the market price is a leading indicator for what would happen tomorrow when the market opens there, and it's especially true when we see more severe dislocations," said Scott Burns, director of ETF analysis at Morningstar, in an interview with Bloomberg News.

For sure, the tragedy that has followed Friday's brutal earthquake and tsunami have continued to astound observers, and all bets are off as to how fast the Japanese economy will be able to find some stability, let alone return to some semblance of normalcy, given that the country faces a nuclear crisis on top of everything else.

Yet, given that stock markets tend to overreact to both good news and bad, some investors are likely betting that the Japanese stock market is now reflecting a worst-case scenario that simply won't play out. Brett Arends of the Wall Street Journal makes a bullish case here.

As well, the Wall Street Journal reported separately that Barton Biggs, the former chief strategist at Morgan Stanley who now runs a hedge fund, has also begun to buy Japanese stocks.

"I'm buying Japan right now," Mr. Biggs told the Journal, adding that the panic selling was "a gross overreaction."

The Nikkei 225 has fallen about 19 per cent since the earthquake struck, and is now up just 22 per cent since the depths of the financial crisis and global recession. However, it too showed signs of resilience in Tuesday's trading session. Despite closing nearly 11 per cent lower, the index rebounded 4.6 per cent from its intraday low in the final two hours of trading.

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