Here’s an easy question: Which country has the biggest stock market based on the total value of all the equities traded on its exchanges? The answer, of course, is the United States. At the start of this year, its exchanges accounted for roughly 60% of the global equity markets.

Now, here’s a tougher question: Which country is number two on that list? You might guess China since it has the second largest economy in the world. However, China is number four on the list at 2.8%. That ranks it behind the United Kingdom which is third at 3.7%.

Believe it or not, Japan has the world’s second largest stock market at 6.2% of global equity market value. The land of the rising sun has the world’s fourth largest economy. Even still, it is only one-fourth the size of China’s gross domestic product (GDP).

What Japan lacks in size it more than makes up for in capitalistic zeal. It acts as the financial gateway between east and west, which is why many companies in Europe, Asia, and America list their securities in the United States and Japan.

When Japan does get attention in the financial press, it is usually for the wrong reasons. The stock market’s rapid sell-off last month was blamed on the Japanese Yen carry trade, even though the vast majority of the hedge funds that participated in that trade were based everywhere but Japan.

For that reason, Japan tends to fly under the radar when investors consider geographic diversification in their stock portfolios. They want the United States because of its economic might, and they want China for its size.

East Meets West

Until a few months ago, Japan had one of the better performing stock markets in the world. When the Nikkei 225 (Japan’s equivalent of the S&P 500) broke above 40,000 in March, it had gained 50% over the previous twelve months.

After that, it leveled off as Japan’s central bank began discussing raising its policy rate from near zero. When it did so a few months later, traders around the world dumped the stocks they had bought with cheap money borrowed from Japan.

Now that the Japanese Yen carry trade is over, it may be time to consider investing in Japan again. The Nikkei 225 finished last week around 35,000 which is where it was trading near the start of this year.

One way to do that is to buy shares of the WisdomTree Japan Hedged Equity Fund (NYSE: DXJ). It is “hedged” to minimize the impact of fluctuations in the value of the Japanese Yen relative to the U.S. Dollar.

According to the fund’s sponsor, this portfolio “consists of dividend-paying companies incorporated in Japan and traded on the Tokyo Stock Exchange that derive less than 80% of their revenue from sources in Japan. By excluding companies that derive 80% or more of their revenue from Japan, the Index is tilted towards companies with a more significant global revenue base.”

For that reason, the fund’s top three holdings are Mitsubishi UFJ Financial Group (NYSE: MUFG), Toyota Motor Corp. (NYSE: TM), and Japan Tobacco Inc. (OTC: JAPAF). It closed last week below $98 after rising above $117 a month ago.

Adapt and Imitate

There is another reason to have exposure to Japan in your stock portfolio. The country has invested heavily in technology and electronics. That bodes well for robotics and artificial intelligence (AI), two of the hottest trends on Wall Street these days.

Japan seldom leads the way in technological innovation, but it is quick to adapt and imitate. Unlike the American “boom or bust” approach to business, the Japanese prefer to invest in a technology once it has been proven.

There is a lot to be said for that approach to risk management. Let someone else burn through their capital to figure out the best way to do something. Then use your capital to market it the world.

That is why I believe this fund could perform particularly well in the years to come. Japan has been using robotics for decades to improve its manufacturing processes. The addition of AI will only make those processes even more productive and efficient.

That is one way to play the AI boom. But there is another way that could produce much bigger returns, and my colleague Robert Rapier just issued a report on his favorite AI stocks.

Want to learn about Robert’s latest money-making trades? Click here.