Japan: The Best-Performing Equity Market YTD

Includes: EWJ, JPXN, SCJ
by: David Hunkar

Japanese stocks have had an incredible run so far this year. The benchmark Nikkei 225 index is up 32.7% as May 1. Compared with this, only a few of the developed indices are up by double-digit percentages. The year-to-date performance of major developed indices as of May 1, are listed below:

  • DAX: 4.0%
  • FTSE 100: 9.4%
  • CAC-40: 5.9%
  • S&P 500: 11.0%
  • Dow Jones Industrial Average: 12.2%
  • IBEX 35: 3.1%
  • Swiss Market: 15.9%

Note: Except the U.S. and UK markets, the rest of the markets were closed on May 1, for the Labor Day holiday.

I wrote an article about investing in Japanese stocks back in January. Since that time the Nikkei has surged to outperform the U.S. indices.

The chart below shows the two-year performance of Nikkei against the S&P 500 and Dow Jones indices:

Click to enlarge

Source: Yahoo Finance

A significant portion of the gains in the Japanese equity markets can be attributed to foreign investors. After the asset bubble burst in the early 90s, domestic investors have continued to avoid stocks and the country has one of the lowest stock market participation rates among developed countries. Due to the steep rise of Japanese stock prices this year, investors may want to tread cautiously before initiating any new positions. In the past two decades the Nikkei rallied many times only to lose all the gains.

The best way to gain exposure to Japan is via ETFs. The iShares MSCI Japan ETF (NYSEARCA:EWJ) is the country-specific ETF for Japan. It has an asset base of over $10.0 billion and total holdings of 313 companies. The other two Japan-focused iShares ETFs are iShares Japan Large-Cap ETF (ITF) and iShares MSCI Japan Small-Cap ETF (NYSEARCA:SCJ).

Disclosure: No positions

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