European Crisis May Boost Appeal of Japan ETFs

by: Tom Lydon

The euro is falling, U.S. stocks are ailing and even the Chinese markets are coming under fire. Where can you go? Investors have taken to safe havens to protect their money, but Japan ETFs might be another option if the country’s fundamentals continue to improve.

Louis Basenese for Investment U comments that value investing will perform best in the long run because of price-to-earnings, price-to-book and price-to-cash flow. In each case, the cheapest stocks tend to have higher returns than the more expensive/popular stocks.

In that category: Japanese stocks. Small-caps in the country are some of the cheapest around, trading at a 60% discount to the S&P 500.

Furthermore, Japan hosts the most companies that are trading below their liquidation levels, or what Ben Graham calls “net-net stocks.” There are a lot of other factors going for Japan, including better GDP numbers, new leadership bent on reform, recovering domestic demand and a projected 64% surge in corporate profits.

Increased exports to China, Vietnam, India and other countries have been accelerating Japan’s growth in recent quarters, report Yuka Hayashi for The Wall Street Journal. Japan’s new center-left gorvernment is focusing on the emerging markets as a “new frontier” for Japan’s growth and will provide cheap financing and regulatory support for infrastructure projects abroad.

Japan’s first-quarter growth was a annualized 4.9%. Household spending increased by 1.3%. The International Monetary Fund projects Japan will expand 1.9% for 2010.

  • iShares MSCI Japan Small Cap Index (NYSEARCA:SCJ)
  • iShares MSCI Japan (NYSEARCA:EWJ)
  • PowerShares FTSE RAFI Japan Portfolio (PJO)
  • SPDR Russell/Nomura PRIME Japan (NYSEARCA:JPP)
  • SPDR Russell/Nomura Small Cap Japan (NYSEARCA:JSC)
  • WisdomTree Japan Dividend Fund (NYSEARCA:DXJ)
  • WisdomTree Japan High-Yielding Equity Fund (NYSEARCA:DNL)
  • WisdomTree Japan SmallCap Dividend Fund (NYSEARCA:DFJ)

Max Chen contributed to this article.

Disclosure: None