Since I'm very close to these two countries, I could provide some info. Japan is still a down market, but just some good companies are pretty good like TOYOTA and Nintendo. Nintendo is quite good cauz the profit from hot Wii. Comparing its tri-foe in US, Toyota has better and harder financial statement. Or Rakuten ( http:// www.rakuten.co.jp/ ), the critical player in online auction in Japan, is also a good choice. In my point of view, I would buy in unless the Nikke is rising very obviously.
China still got a lot of money-sucker-monsters unlisted. Just like China Tobacco, its revenue and margin are expected to be similar to Microsoft. Remember it just made cigarettes. The retail price of one pack is around 8 US and 30millions of packs are produced daily. Since China got over 1.6-1.7 billions of people(about 0.2-0.3 are not registered). The number is reasonable. A ink print companies is listed just because it prints China Tobacco's pack.
China Tobacco is expected to launch IPO in 2009.It will push up stock market to the new peak. How many cigarette manufactures are not listed? Over 50. And only few wine manufactures are listed Those are what I called money-sucker-monsters. Another industry is travel and leisure. China's public travel agencies serve 100 millions of tourists annually and earn millions of money. At the last, still few "dominant" medical instrument produce more and more annually.
Why China stock market can keep up? Most of big companies are owned by gov right now and are "dominant". So that they can earn very easily. Take China Petroleum & Chemical-h for example, over 50% of 90,000 gas stations in China are owned by it. Dominant and profitable.
That's my reason to invest China but not Japan. I've earned over 60% in 2006 by holding AllianceBernstein Great China fund ( http://www.alliancebernste