Is it time to buy Japanese ETFs under the Nikkei name in about 30 years?
JAnanese stocks were near a 30-year high on December 9 on optimism from the global market. The UK’s launch of the Pfizer COVID-19 vaccination program and likely progress on a US stimulus deal have raised hopes for a faster global economic recovery. Optimal data on Japan’s domestic machinery also boosted the Japan stock market.
New Japanese Prime Minister Suga has proven to be a good candidate for the markets as his election meant few major changes from the country’s previous economic policy (known as “Abenomics”). Not only that, Suga appears to be a supporter of even lower rates, which means a new stock market rally.
To further boost market confidence, orders for basic machinery in Japan fell sharply in October from a decline the month before. The 17.1% increase was the largest sequential increase since comparable data became available in 2005, and economists forecast 2.8% rise in Reuters poll.
Since “basic machinery orders are leading indicators for capital spending,” as Kiyoshi Ishigane, chief fund manager at Mitsubishi UFJ Kokusai Asset Management Co, as quoted on Reuters, the machinery sectors and materials are very likely to outperform in the future.
Buffett’s bet on Japan
Another positive point is that Warren Buffett’s Berkshire Hathaway Inc. recently bought stakes worth $ 6 billion in five Japanese trading companies. These companies are Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co. and Sumitomo Corp. (read: Buffett announces stakes in Japanese trading companies: ETFs to watch).
Japanese trading companies, also known as “sogo shosha”, are conglomerates that import various materials into Japan ranging from energy and metals to food and textiles, and provide services to manufacturers, according to a CNBC article.
Berkshire says it is looking to hold long-term investments and can increase its stakes in any of the companies to a maximum of 9.9%, depending on price, as reported in the article from CNBC. Buffett’s bet means long-term outperformance for Japanese investments.
Yen under control
With feelings of risk taking over global equities, the safe haven yen is unlikely to gain much strength. This should be favorable for Japanese stock indices, which are mostly export-oriented.
Japanese share a purchase?
Against this background, below we highlight a few Japanese ETFs that could be captured in advance.
iShares MSCI Japan ETF EWJ – Up 6% last month
IShares MSCI Japan Equal Weighted ETF EWJE – Up 5.5% last month
Xtrackers Japan JPXNikkei 400 Equity ETF JPN – Up 6.2% last month
IShares JPX-Nikkei 400 ETF JPXN – Up 6% last month
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.