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Japan Powers Asian Stock ETF Rally


The MSCI Asia Pacific Index is trading at its highest level in 17 months with a rally in Japan’s stock market on a weaker yen supplying much of the pop.

The benchmark is headed for its highest close since August 2011 on speculation the Federal Reserve will renew its commitment to asset purchases, Bloomberg reports.

“The pain trade is fear that you are going to miss out on the rally,” said Bob Van Munster, head of Australian equities at Tyndall Investment Management Ltd. in Sydney, in the article. “We have low interest rates and economic tail risks that are abating. As fear continues to diminish there will be a rotation into risk assets.”

Vanguard MSCI Pacific ETF (VPL) is up about 10% the past three months.

As of Dec. 31, the top country allocations in the ETF were Japan at 58.7%, Australia at 26.2%, Hong Kong at 9.2% and Singapore at 5.5%, according to Vanguard.

Japan stock ETFs such as iShares MSCI Japan (EWJ) have surged recently in the wake of the election of Prime Minister Shinzo Abe, who has pledged to pressure the Bank of Japan to launch unlimited quantitative easing to assist the economy.

The new prime minister “has single-handedly changed the psychology of the yen’s exchange rate and set it on a potential fast track to depreciation,” says Jeremy Schwartz, director of research at WisdomTree Investments. [Japan ETFs: More Room for Yen Weakening?]

CurrencyShares Japanese Yen Trust (FXY) has shed 12% the previous three months.

Specialized ETFs that invest in Japanese stocks but hedge their exposure to a weaker yen have been extremely popular lately. They include WisdomTree Japan Hedged Equity Fund (DXJ) and db-X MSCI Japan Currency-Hedged Equity ETF (DBJP). [Japan ETF Doubles in Size]

Later Wednesday, markets will get the Federal Reserve announcement on interest rates and the economy. The Commerce Department on Wednesday said U.S. gross domestic product fell at a 0.1% annual rate in the fourth quarter. [How ETFs Reacted to Negative GDP]

Vanguard MSCI Pacific ETF


The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.