Investors have not been thrilled with Japan exchange traded funds to this point in 2014. Year-to-date, the iShares MSCI Japan ETF (EWJ) and the WisdomTree Japan Hedged Equity Fund (DXJ) have lost an average of 6.6% while DXJ has shed $1.1 billion in assets.
Safe-haven demand for the yen has pressured Japanese equities, prompting comments from the Bank of Japan that there is no good reason for the currency’s recent strength. [BoJ Says Yen Shouldn't be This Strong]
There are some signs, including some of the technical variety, that indicate investors may not want to be hasty in throwing in the towel on Japan ETFs.
“Time for some good fortune in Japan? EWJ has been breaking out of some short-term resistance on increasing volume,” said Captain John Charts of the largest Japan ETF. EWJ is “doing so with bullish divergences in momentum indicators.”
Japan ETFs have recently been showing signs of life. Although the CurrencyShares Japanese Yen Trust (FXY) is up 0.3% since the start of May, DXJ and EWJ are up an average of 1.7% while the db X-trackers MSCI Japan Hedged Equity Fund (DBJP) is up 1.2%.
All of those performances are well ahead of the 0.3% delivered by the iShares MSCI EAFE ETF (EFA) since May 1.
Prime Minister Shinzo Abe’s economic policies is helping to shift billions of dollars of government-controlled investments into the Japanese equities as the country pulls of out a deflationary environment and pushes the economy toward growth, reports Chikafumi Hodo for Reuters.
The Government Pension Investment Fund (GPIF), the world’s largest public pension with $1.26 trillion in assets, started investing billions more into stocks. Abe’s ruling party recently stated that it would change the GPIF’s staff to shift portfolio decisions. [Institutions Buy Japanese Stocks]
“Abe is trying to restructure the tax code and lower corporate tax rates to make Japan a more attractive place to do business. This should be good for corporate profits in the longer run. Expect more consumption tax hikes next year, pushing the rate to 10%, which will be offset by lowered corporate tax rates,” said WisdomTree Research Director Jeremy Schwartz in a note out earlier this month.
iShares MSCI Japan ETF
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of EFA.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.