Japanese stimulus plan lifts ETFs linked to Nikkei, Topix and MSCI Japan

Jan 11th, 2013 | By | Category: Equities

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Exchange-traded funds (ETFs) linked to the Nikkei, Topix and MSCI Japan finished the week strongly after the Japanese cabinet, led by new Prime Minister Shinzo Abe, approved a 10.3 trillion yen ($116 billion) stimulus package to bolster the country’s long-suffering economy.

Japanese stimulus plan lifts ETFs linked to Nikkei, Topix and MSCI Japan

Japan’s new stimulus package has boosted ETFs linked to the Nikkei, Topix and MSCI Japan.

While some form of stimulus was widely expected, the market was impressed with the speed with which it has been announced – just four weeks after Abe’s election win – demonstrating the prime minister’s commitment to honour pledges designed to kick start growth.

Among these pledges was a vow to pressure the Bank of Japan to carry out more aggressive monetary easing and institute a 2% inflation target designed to boost nominal growth and weaken the yen.

So far, the market appears impressed with these policies, dubbed “Abenomics” by commentators, with money flowing into the Japanese equity market from overseas. These inflows have helped ETFs such as the Lyxor ETF Japan Topix (LTPX), which tracks companies listed on the First Section of the Tokyo Stock Exchange, advance 24% since 14 November 2012 when elections were announced.

FEATURED PRODUCT

HSBC MSCI Japan ETF(HMJP)

– Diversified exposure to over 300 Japanese
companies listed on the Tokyo, Osaka, JASDAQ
and Nagoya stock exchanges

– Major holdings include Toyota, Mitsubishi UFG
Financial, Honda, Canon, Sumitomo Mitsui Financial,
Mizuho Financial and Takeda Pharmaceutical

– Physical replication with full transparency to
underlying holdings

– UCITS IV compliant, London listed, UK Reporting
Status, eligible for ISAs and SIPPs

– TER of just 0.40% per annum, considerably less
than actively managed Japan funds

Patrick Moonen, Senior Equity Strategist at ING, reckons Japanese equities could continue to perform strongly if the new government lives up to expectations.

“It remains to be seen how successful Shinzo Abe is in day-to-day political practice, but there is potential for the Japanese market to be boosted significantly. In addition, valuations are attractive and earnings growth may be amongst the highest in the world, helped by a weaker yen and a modest global recovery”, said Moonen.

UK and European investors looking to access Japanese equities via ETFs have a number of funds to consider, tracking a range of different indices.

These first nine funds track the broad MSCI Japan Index. This 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, Osaka Stock Exchange, JASDAQ and Nagoya Stock Exchange. The index currently has 317 constituents and covers 85% of the investable 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%
UBS-ETF MSCI Japan (UB02) TER 0.55%
iShares MSCI Japan (IJPN) TER 0.59%

Sterling hedged
db X-trackers MSCI Japan GBP Hedged TRN Index ETF (XMJG) TER 0.60%
iShares MSCI Japan Monthly GBP Hedged ETF (IJPH) TER 0.64%

The following Deutsche Bank fund tracks the S&P Japan 500 Shariah Index, a Shariah-compliant version of the S&P Japan 500. Index constituents are drawn from companies listed on the Tokyo, Osaka, and JASDAQ exchanges, across all size brackets. The index currently has 107 constituents.

db X-trackers S&P Japan 500 Shariah ETF (XSHJ) TER 0.50%

The next two funds track the MSCI Japan Small Cap Index. This 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 comprises the smallest 15% of the total investable market by market capitalisation. Both funds, which use an optimised replication approach, have in excess of 500 holdings.

Credit Suisse MSCI Japan Small Cap ETF (CJPS) TER 0.58%
iShares MSCI Japan SmallCap (ISJP) TER 0.59%

To access pure-play large-cap stocks, the MSCI Japan Large Cap Index offers the most relevant exposure, comprising approximately the top 70% of the total investable market by market capitalisation. The fund currently has 145 constituents.

Credit Suisse MSCI Japan Large Cap ETF (CJPL) TER 0.48%

Other large-cap funds include those tracking the Topix and Nikkei.

Lyxor ETF Japan Topix (JPNL) TER 0.45%
The 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.

(All funds mentioned above are listed on the London Stock Exchange and registered for distribution across much of Europe; most funds also have multiple cross-listings on other European exchanges, such as the Deutsche Börse, NYSE Euronext, SIX Swiss and Borsa Italiana).

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