Japan Market Watchers Cautious Despite Downturn : Stocks: Experts agree it’s a bear market, but not on whether the bottom has been reached.

Money managers are often known for sniffing out bargains, but many global stock pickers are staying guarded on the Japanese market despite a recent slide to its lowest levels in five years.

Market analysts fear more losses could be in store after a sharp drop early last week pulled Tokyo’s widely watched Nikkei index to its lowest close since February 1987.

The latest tumble did not alter many views on global stock strategy because Japan has been in a bear market for years. In addition, it has less effect now on New York, London and other trading centers than a few years ago, the investors said.

David Shulman, U.S. stock market strategist for Salomon Bros., said he remains cautious on Japan.

“Tokyo is a real bear market,” he said. “It’s hard to predict when that will end.”

William Wilby, who manages the Oppenheimer Global Growth and Income Fund, said he finds Japan only marginally more attractive despite the recent drop, although it appears Tokyo may be finding a bottom.

“I think the major damage has been done,” he said.

Although the 225-share Nikkei index climbed back over 20,000 at the end of last week, brokers and analysts in Tokyo are not ruling out further weakness before the end of the fiscal year on March 31.

A cut in official Japanese interest rates, expected before month’s end, could be crucial to the market’s path.

“It doesn’t feel like we’ve definitively hit bottom,” said Masami Okuma of UBS Phillips & Drew.

Stephen Nagourney, a global strategist at Lehman Bros., said he likes the U.S. stock market the best and allocates 39% of his portfolio to it.

“I think there could be some earnings surprises with the first quarter, but as long as (U.S. Treasury) bonds stay around current levels, I don’t anticipate any significant problems in the stock market,” he said.

Other money managers are less keen on the U.S. stock market, which has outpaced other big markets around the world.

And across the Atlantic, some money managers are more upbeat about Tokyo.

Smith New Court’s March monthly survey of 101 British institutions says 27% plan to boost their holdings in Japan, while 38% expect to boost European investments. Another 30% plan to cut their allocations to U.S. stocks.

“On balance, I think the valuations are good in Japan,” said Ronald Frashure, executive vice president at Acadian Asset Management Inc. He also favors some Asian emerging markets, including Hong Kong, Singapore and Malaysia, and says British markets look more attractive.

“We’re basically remaining true to our valuation discipline,” he said.

After a recent visit to Europe, Shulman said Europeans think that their markets seem cheaper than the U.S. market.

The Dow Jones industrial average has closed at 14 record highs since the start of the year.

Wilby said spending on infrastructure within Europe should bode well for growth in the region.

“There has to be massive rebuilding in Eastern Europe,” and Swiss and German companies should benefit, he said.