ETF Investors Should Keep an Eye on Japan

Japan is a staple country on investor’s radar, and the related ETF makes the access to Japan hard to ignore. So, are there reasons to add Japan to your portfolio?

Jeff Saut for Minyanville has a case that supports the argument that Japan’s descent may be ending and an upward movement may soon emerge. Although Japan’s demographics and corporate governance aren’t the greatest, a quick rundown of corporate Japan show sings that restructure has already started, especially in the small-cap realm.

Here are four signs:

1. A bull market begins with cheap valuations. Japan’s P/E multiple is high — but it’s like a cyclical stock you’d want to buy when its P/E multiple is high and the price-to-book is low. For the record, we watch trend lines to spot potential opportunities.

2. Foreign investors and commercial banks should provide the liquidity that is needed for Japan to recover. Japan’s money multiplier is positive for the first time in two decades.

3. Peaceful relations between China and Taiwan means greater integration between China and Japan. Japan also does more business with China than it does with the United States. China’s transformation could mean good things for Japan.

4. Japanese equities will prosper if the Democratic Party of Japan (DJP) is gaining traction over the long-dominant Liberal Democratic Party. The signs are there that this is happening.

• iShares MSCI Japan Index (EWJ): down 1.6% year-to-date

Comments

[John Erad:]

Do you own any of this ETF that you are trying to pump?

Jul 02 02:45 PM

[Mad Hedge F...:]

I prefer to use sushi as bait instead of dinner. It’s sad to see a once great country fall on hard times. It’s likewatching a formerly leading hedge fund manager apply for food stamps.I’m talking about Japan, which in 1989 boasted the world’s mostvaluable stocks, largest banks, and strongest currency. Oh, how themighty have fallen. This week the Ministry of Finance published thetrade figures for May showing a 42% YOY drop, and that the cataclysmicfall in exports continues unabated, as foreigners keep their money intheir pockets instead of buying high quality cars and electronics. Evenexports to China fell 29.7%. I’m sure the chart below will be found inbusiness school textbooks for decades to come as proof of the risks ofrunning an overly export dependent economy. Although a giant fiscalstimulus package will start to hit in the second half of this year,most economists have GDP forecasts for the year of minus 6.8% or worse.This would take GDP back to the 2004 level, and make our economy lookpositively bubbliscious by comparison. This is all happening when thenumbers of those retiring is going through the roof, causing welfarepayments to skyrocket. Taking a page out of Obama’s playbook, thegovernment is borrowing to meet these costs, so the national debt isexpected to reach the certifiable nosebleed territory of 197% by nextyear! Prime Minister Taro Aso has so far fought off increasedconsumption taxes, but it is just a matter of time before those effortsare tossed out the window. Continued deflation is a no brainer. Realestate prices are still stuck at 30% of their 1990 levels. This is whatan “L” shaped recovery looks like up close and ugly. In the meantime,the yen strengthens, making exports ever more expensive anduncompetitive. Better to stand aside from the Land of the Rising Sunand watch with tears. Is the US next?

Jul 02 02:59 PM

[Douglas T:]

Good article on Japan's current corporate economic situation Tom. An uptrend in Japanese equities has appeared to be one of the best performing sectors of the global market place in recent weeks. This may simply be a blip on the radar screen but it could also indicate a sign of positive developments that may be forthcoming as you indicate in your article. www.mutualfundwealth.com/

Jul 06 10:41 AM