Japanese equity ETFs offer access to “exceptional investment opportunity”

Jun 20th, 2012 | By | Category: Equities

Japan’s exports rose the most in 17 months in May, jumping 10% year-on-year, according to official data from Japan’s Ministry of finance. The rise eases concerns about the impact of a global slowdown on the Japanese economy.

Japanese equity ETFs offer access to "exceptional investment opportunity"

Katsuaki Ogata, CIO of Japan Value Equities at AllianceBernstein, believes that, at today’s valuations, Japanese equities offer an “exceptional investment opportunity”.

Exports were boosted by a 38.2% increase in sales to the US, Japan’s second-biggest single trading partner. Shipments to China, Japan’s biggest, also rose for the first time in eight months, increasing 3%. Japan’s export-reliant economy depends heavily on demand from markets such as China, the US and Europe for growth.

Meanwhile, in a sign that domestic demand may also be picking up, imports increased during the month, up 9% year-on-year, ahead of analysts’ expectations. Overall, the data indicate that the Japanese economy is performing well in what is a challenging global environment.

Katsuaki Ogata, CIO of Japan Value Equities at AllianceBernstein, believes that, at today’s valuations, Japanese equities offer an “exceptional investment opportunity”. Ogata says that, “although Japanese stocks significantly lagged global markets in 2011, due in part to the effect of last year’s earthquake, this has made the Japanese market available at historically attractive prices”.

Ogata, who oversees the AllianceBernstein Japan Strategic Value Portfolio, a Luxembourg-domiciled fund, continues: “Although the global economy remains fragile, particularly in light of the European debt crisis, we expect Japan’s economy to outpace most developed markets in the coming years as it benefits from a pickup in post-quake reconstruction efforts and the resilience of neighbouring Asian economies. More importantly for equity investors, we expect corporate earnings to rebound strongly as well.”

For investors looking to invest in Japanese equities, there is a broad selection of London-listed ETFs tracking a range of different benchmarks. European investors should note that many of these ETFs are cross-listed on European exchanges (Euronext, Xetra, Borsa Italiana etc) and/or are registered for distribution in multiple European countries.

Broad market

HSBC MSCI Japan ETF (HMJP) TER 0.40%

MSCI Japan Source ETF (MXJP) TER 0.45%

Amundi ETF MSCI Japan (CJ1) TER 0.45%

Credit Suisse MSCI Japan (CSJP) TER 0.48%

DB X-trackers MSCI Japan TRN Index ETF (XMJP) TER 0.50%

iShares MSCI Japan (IJPN) TER 0.59%

The above six funds track the MSCI Japan Index. The MSCI Japan is a free-float adjusted market-capitalisation weighted index designed to track the equity market performance of Japanese securities listed on the Tokyo Stock Exchange, the Osaka Stock Exchange, JASDAQ and the Nagoya Stock Exchange. The index covers 85% of the investable market and currently has 315 constituents.

DB X-trackers S&P Japan 500 Shariah ETF (XSHJ) TER 0.50%
The S&P Japan 500 Shariah Index is Shariah-compliant version the S&P Japan 500 designed to represent the Japanese investable market. Index constituents are drawn from companies listed on the Tokyo, Osaka, or JASDAQ exchanges. Constituents represent the large-, mid- and small-cap components of the Japanese equity markets. The index currently has about 280 constituents.

Small cap

Credit Suisse MSCI Japan Small Cap ETF (CJPS) TER 0.58%

iShares MSCI Japan SmallCap (ISJP) TER 0.59%

The above two funds track the MSCI Japan Small Cap Index. The MSCI Japan Small Cap Index offers exposure to Japanese small-cap stocks which rank below the MSCI Japan Index as measured by market capitalisation and comply with MSCI’s size, liquidity, and free float criteria. The index currently has approximately 600 constituents, comprising the smallest 15% of the total investable market by market capitalisation.

Large cap

Credit Suisse MSCI Japan Large Cap ETF (CJPL) TER 0.48%
The MSCI Japan Large Cap Index offers exposure to Japanese large-cap stocks, essentially those comprising approximately the top 70% of the total investable market by market capitalisation. The fund currently has 141 constituents.

Lyxor ETF Japan Topix (LTPX) TER 0.50%
The Tokyo Stock Price Index (Topix) includes all First Section (market place for stocks of larger companies) listed shares on the Tokyo Stock Exchange. The index is free-float adjusted market capitalisation-weighted and currently has 1,665 constituents.

Credit Suisse Nikkei 225 (CNKY) TER 0.48%
The Nikkei 225 Index is comprised of 225 highly liquid large-cap stocks traded on the first section of the Tokyo Stock Exchange. Constituents are given an equal weighting based on a par value of 50 Japanese Yen per share, whereby the prices of stocks with other par values are adjusted to also reflect a par value of 50 Japanese Yen per share.

Selected North America-listed funds

SPDR Russell/Nomura PRIME Japan ETF (NYSE:JPP)

SPDR Russell/Nomura Small Cap Japan ETF (NYSE:JSC)

WisdomTree Japan Small Cap Dividend ETF (NYSE:DFJ)

Claymore Japan Fundamental Index ETF (TSE:CJP)

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