Is Now the Right Time to Invest in Japanese ETFs? Let’s explore
The world’s third-largest economy is grappling with multiple issues such as the coronavirus epidemic, economic growth and tensions with China. In such a scenario, the longest-serving Japanese prime minister, Shinzo Abe, resigned on August 28 due to health concerns. Now Japan’s Chief Cabinet Secretary Yoshihide Suga, former Defense Minister Shigeru Ishiba and former Foreign Minister Fumio Kishida will be vying for the leadership position in the Liberal Party leadership elections. Democrat (LDP) on September 14.
Compounding concerns, the Japanese economy contracted by 28.1% on an annualized basis in the second quarter of 2020, comparing unfavorably with the initial estimate of a contraction of 27.8%, according to revised data from the Cabinet Office (according to a Reuters article). However, the revised GDP figure for the April-June quarter looked better than a median forecast of a 28.6% contraction, according to a Reuters poll. In addition, Japanese household spending fell 7.6% year-on-year in July compared to a median market forecast of a 3.7% decline (according to a Reuters report). This was largely the result of people avoiding eating out and postponing their travel plans.
A silver lining?
According to a Reuters report, Suga has a better chance of winning the LDP leadership election because he would have a parliamentary majority. Suga said in his first campaign speech that he would continue to pursue Abe’s “Abenomics” policies, which include hyper-easy monetary policies, massive government monetary stimulus and a flexible spending approach to support the economy. Japanese economy (according to a Reuters article).
In addition, Warren Buffet’s Berkshire Hathaway’s (BRK.A) has invested over 5% stake in each of the five major Japanese trading companies, namely Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co. and Sumitomo . Corp. Continuing, the investment is valued at nearly $ 6.25 billion based on trading house closing prices on Aug. 28, according to a CNBC report.
Japanese trading companies, also known as “sogo shosha,” are conglomerates that import almost everything from energy and metals to food and textiles and also provide services to manufacturers, according to an article by CNBC. Berkshire has announced plans to hold long-term investments, with the option of expanding its stakes in any of the companies to a maximum of 9.9%, depending on price (according to a CNBC article).
Japanese Olympic Minister Seiko Hashimoto also said she believed the Tokyo Games that had been postponed due to the coronavirus crisis would be held for good next year, given the preparations made by athletes and others associated with the tournament, according to sources. The Tokyo Olympics will certainly be a big boost to the Japanese economy next year.
Focus on Japan ETFs
In this context, investors can keep an eye on Japanese ETFs as IShares MSCI Japan ETF EWJ, JPMorgan BetaBuilders Japan ETF BBJP, WisdomTree Japan Small Cap Dividend Fund DFJ, Franklin FTSE Japan ETF FLJP and IShares MSCI Japan Small Cap ETF SCJ.
This fund replicates the investment returns of the MSCI Japan index. It includes 320 farms. The fund’s managed assets are $ 9.88 billion and the expense ratio is 0.49% (read: Buffett announces stakes in Japanese trading companies: ETFs to watch).
This fund replicates the investment returns of the Morningstar Japan Target Market Exposure Index. It includes 368 farms. The fund’s assets under management are $ 5.12 billion, while its expense ratio stands at 0.19%.
This fund replicates the investment returns of the WisdomTree Japan SmallCap Dividend Index. It consists of 766 farms. The fund’s assets under management are $ 239.9 million and the expense ratio is 0.58% (read: The new prime minister and Buffett’s Bet Booster Japan ETFs?).
The fund replicates the performance of the FTSE Japan Capped index. It includes 503 farms. The fund’s assets under management are $ 446.2 million and the expense ratio is 0.09%.
The fund replicates the MSCI Japan Small Cap index. It includes 975 farms. The fund’s assets under management are $ 62.7 million and the expense ratio is 0.49%.
Analysts estimate that Japan’s GDP will rebound by around 13% in the current quarter, according to a Bloomberg article. However, Japan’s population contraction will continue to be a huge obstacle to the country’s long-term economic growth and, as such, it is believed that the country could face serious challenges in reaching its size as before the pandemic, according to the same article. In addition, the new Japanese leader will first have to tackle the issue of controlling the ongoing pandemic and also work to digitize the nation and create more work-from-home opportunities.
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