The iShares MSCI Japan Index Fund (EWJ) was the single most-traded stock Thursday, with nearly 150 million shares changing hands yesterday, as investors continued to jump into what many see as a still-developing Japan growth story.
The action—which outshined trading volume seen even in very active stocks such as Microsoft and the SPDR S'P 500 ETF (SPY)—came accompanied by performance that landed the fund among the top 10 best-performing ETFs on April 11, with net asset value gains of 2.63 percent. Just the day before, EWJ was the No. 1 ETF in terms of asset gathering, raking in $352 million in one day—the very traction that has made EWJ into a $8.4 billion fund.
EWJ is certainly not alone in benefiting from the frenzy of investment in Japanese equities. Since Jan. 1, it seems that not a week goes by without seeing funds like EWJ or the WisdomTree Japan Hedged Equity ETF (DXJ), or even the db X-trackers MSCI Japan Hedged Equity Fund (DBJP) making headlines.
Investors continue to rush to access Japan on growing enthusiasm that the country might indeed shake off a 25-year-old deflationary scourge thanks to aggressive quantitative measures taking shape.
Since Shinzo Abe took office as Japan’s prime minister on a platform of reform, the country has seen the beginnings of an ambitious bond-buying program materialize, and a currency devaluation effort that has pushed the yen to slide some $20 against the dollar in less than six months.
Truth be told, as the Wall Street Journal recently pointed out, a $1-to-100 yen exchange rate was last seen five years ago, and it hardly translated into a boom for Japan’s economy. But the weaker currency is expected to help the country’s exporters by making them more competitive globally, as well as more profitable, and ultimately boost the country’s bottom line.
EWJ has now attracted $2.15 billion since Jan. 1, while DXJ—a fund that serves up Japanese equities but hedges out the exposure to the currency fluctuation—has gathered an astounding $4.31 billion in little more than three months.
DXJ and DBJP were also found among Thursday’s best-performance surprises, continuing to inch higher even as some grow worried that the Japan equity rally might have come a bit too far too quickly for its own good. After all, the currency decline has not yet materialized into export growth.
On the contrary, Japan’s exports in February were nearly 3 percent lower than year-earlier comparisons despite a weakening currency, albeit they appear to be in an uptrend, partly due to sluggish global demand, as reported by the Journal. What's more, a weaker yen is increasing input costs for many Japanese manufacturers.
The Nikkei 225 is up roughly 30 percent year-to-date, having rallied now some 58 percent in the past six months fueled primarily by government rhetoric.
EWJ has rallied 16.4 percent so far this year, where its currency-hedged counterparts DXJ and DBJP are up 27 and 31 percent year-to-date, respectively. The difference in performance is a stark reminder to investors of the detrimental impact a strong dollar—or weaker yen, as it were—can have on international equities portfolios.
By comparison, the S'P 500—which in its own terms has been seeing new record-high levels amid strong upward momentum—is only up 11.3 percent since Jan. 1.
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