ETF Flows Show Investors Losing Faith In Japanese Equities

May 13, 2019 4:01 AM ETDXJ, EWJ, DFJ, DBJP, JOF, JPNL, DXJS, HEWJ, JEQ, EWV, EZJ, SCJ, JPXN, JPN, FJP, HJPX, DEWJ, GSJY, HFXJ, JPNH, BBJP, FLJH, FLJP1 Comment
Topdown Charts profile picture
Topdown Charts
4.82K Followers

Summary

  • Japanese equities have seen substantial outflows.
  • A long worry list has driven investors to lose faith in Japanese equities.
  • We view this as a classic contrarian set-up, with investors quite possibly too bearish on Japan, and a couple of potential catalysts.
  • Looking for more? I update all of my investing ideas and strategies to members of Weekly Best Idea. Get started today »

This article focuses on an important development for Japanese equities that investors should be aware of. Recently there have been significant outflows from Japan equity ETFs. Typically, outflows of this magnitude send a bullish contrarian signal, and throughout this article we will put forward some points that temper this bullish signal and round out the case.

The key chart of today comes from an exclusive report on Japanese equities, which drew the conclusion that Japanese equities are undervalued with an interesting potential policy wildcard.

The chart shows that recently, as noted, there has been substantial outflows - indicating a loss of confidence in Japanese equities.

japan equity etf flowsSpecifically, the chart shows the rolling quarterly ETF net-flows as a percentage of assets under management [AUM] (with price effects taken out) against the price of Japanese equities which is represented by the WisdomTree TR/Japan Hedged Equity ETF (NYSEARCA:DXJ).

Typically, outflows of this magnitude send a bullish contrarian signal. The logic behind this is simple, the time to buy is often times when fear and pessimism are at a maximum since this usually occurs near market bottoms.

In terms of the macro outlook for Japan, a recent article by the Japan Times discussed the most visible threat to Japan's economy as the planned consumption tax hike in October 2019 from 8% to 10%.

The article stated that according to a mid-November analysis from Nomura, the impact of the consumption tax hike will reduce private consumption by 0.2 percent over the long term, a consequence of the tax hike taking a permanent bite out of household spending power. This leaves less money for consumers to invest in the equity market, thus reducing demand.

Some might argue this point is irrelevant because the Japanese government is preparing countermeasures but many forecasters believe the government's efforts will be

If you like my free articles, you will probably like our Marketplace service, which takes a deeper look at select ideas, provides you with a big picture weekly global market snapshot, and a monthly cheat-sheet on the outlook across global markets... Must-have market-intel for active investors.

Click here for a free trial.

This article was written by

Topdown Charts profile picture
4.82K Followers
Topdown Charts is an independent research firm covering global asset allocation and economics - bringing a chart-driven, top-down approach to investors.  -->> Check out our new entry-level service: https://topdowncharts.substack.com/--We take a top-down, global multi-asset perspective to deliver:Actionable investment ideasRisk management inputMeaningful macro insightsCharts to use in your own work--Our clients include Pension companies, RIAs, Hedge Funds, family offices, insurance firms, and wealth managers and Investment Consultants.--Sign up for exclusive insights:  https://topdowncharts.substack.com/===================================================

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Recommended For You

Comments (1)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.