Japan: Weekly ADR and ETF Performance

Last week was not so good for Japan ADRs with nearly 60% of the 28 listed on the Nasdaq or NYSE having a negative return. Japan ETFs were pretty solid however, returning about 1.3% on average among 8 ETFs.

As I noted in a separate post covering monthly ADR returns, Makita (MKTAY) somewhat surprisingly was a leader among all Japan ADRs in January (+13.8%, just short of Kubota's (KUB) +13.9%) and led again last week, gaining 13.5%. Other top gainers include FUJIFILM (FUJI) +5.7% and Nomura (NMR) +3.3%, both of which reported better-than-expected earnings.

Laggards were Nissan (NSANY) -6.4%, Nidec (NJ) -5.5%, Trend Micro (TMIC) -4.5%, and Mizuho Fin. Grp. (MFG) -4.0%. Click here to read more about my take on Trend and other ADRs that lagged for the month of January.

Regarding Mizuho, bank stocks continue to struggle due to the unfavorable interest rate (lending) environment. My stance is the BoJ does not raise rates this month, keeping downward pressure on bank stocks. The fact Mizuho and Japan's two other mega banks reported double-digit drops in earnings last Wednesday doesn't help, although I think Mizuho had the best earnings among the three.

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As for Nissan, I have liked it best among Japan's big-3, seeing opportunity as it has lagged the strong run of rivals Toyota (TM) and Honda (HMC). Nissan was supposed to be on the road to recovery with long awaited new models hitting the market from H2'06. Somehow though they keep getting it wrong and reported their first drop in profit in 6-quarters and lowered FY (ending in March) profit guidance.

Since I suggested Nissan as both a good short-term and long-term play on Dec. 12th, Nissan gained about 10% before selling off after earnings on Friday. Today was the first time Nissan traded in Japan since it reported after the market closed Friday in Tokyo and it was heavily sold from the start, losing 8.35% to ¥1,383 ($22.90 ADR equiv. at ¥120.8/$1) on the day -- its ADRs lost 8% to $23.50 on Friday. If the ¥/$ holds around ¥120.8/$1 then its ADRs could trade even lower by about 2.5%. If you held Nissan through earnings as a long-term investment, I don't think its long-term attractiveness has changed. If you were playing Nissan for the short-term, hopefully you took some off the table ahead of earnings.

As I noted in a separate post covering the performance of Japan ETFs and CEFs in January, the closed-end fund Japan SmallerCap Fund (JOF) outpaced all others by a wide margin, weekly: 3% vs. 1.14% average (monthly: 6.3% vs. 0.85% avg.). Note that JOF is trading at an 18%-plus premium as of Friday's close. See the hyperlinked post for more details including my brief thoughts on investing in Japan.

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For traders, iShares MSCI Japan Index ETF (EWJ) remains the best choice given its liquidity. However, other funds, primarily those launched last June by Wisdom Tree (WSDT.PK) and later in the year by State Street (STT), are looking increasingly attractive since they offer exposure to different market caps and different weightings (ex. dividend payout). A list of these ETFs follows:

• WisdomTree Japan SmallCap Dividend (DFJ)
• WisdomTree Japan High-Yielding Equity Fund (DNL)
• WisdomTree Japan Total Dividend Fund (DXJ)
• SPDR Russell/Nomura Prime Japan (JPP)
• SPDR Russell/Nomura SmallCap Japan (JSC)

Disclosure: The author owns shares of IIJ and NIS Group, and MSCI Japan Index ETF call options.