Futu Research | ETF Investment Research
The bull market in Japanese stocks continues, it is possible to follow these Japanese stock ETFs
The Japanese stock market experienced a major reversal in narrative logic, showing a solid and attractive trend since 2023, with the Japanese stock index recording the largest gain since 1989, continuing to benefit from corporate profit growth, improved capital efficiency, and support for market liquidity by the policy environment. Today, the Nikkei 225 index closed up 0.5%, reporting 40109.23 points, closing above 40,000 points for the first time in history.
How does the Japanese market continue to rise?
Warren Buffett's view of the logic of long-term stock market pricing can be articulated by his famous parable: “In the short term, the stock market is a voting machine; in the long run, the stock market is a weighting machine.”
It is clear that Japan is currently the “voting machine” and the “heavy machine” generating resonance.
1. Short-term voting machine
Currently, the Japanese economy is benefiting from a consumer warming brought by wage growth and moderate inflation, corporate profits continue to improve and generate stable cash flow. Without taking into account the depreciation of the foreign exchange, GDP per Japanese in yen terms has increased (although considering the depreciation of the relative dollar).
And the flow of foreign money into the space is huge, only a quarter of the historical peak. The analysis shows that the current yield on the stock market is only about 15 to 16 times, well below the 60 times when the Japanese economic bubble burst in the 1990s.
2. Long-lasting weighing machine
Global investors are not only concerned about the long-term growth of large Japanese companies such as Berkshire Hassavi, but also on the positive transformation of Japanese listed companies in enhancing shareholder value: In 2023, Japan-listed companies showed unprecedented returns, with cumulative repurchases for the whole year The amount soared to a new record of about 9.6 trillion yen, hitting a new high for two consecutive years.
Therefore, without considering the depreciation of the yen, the Japanese stock market came out on a very spectacular bull market. Not only that, we have very adequate tools for trading. ETFs as a convenient investment tool provide investors with a simple and efficient way to participate in the performance of the Japanese stock market. There are many different types of ETFs to choose from in both domestic and overseas markets. Next, we will introduce some of the most representative Japanese equity ETF products.
1. Japanese equity ETF on the Hong Kong stock market
To invest in the Japanese stock market, there are three options for Hong Kong stocks:
1. $ChinaAMC MSCI Japan Hedged to USD ETF(03160.HK)$: Track the MSCI Japan Equity Index (100% USD hedged) with a management fee of 0.5% per annum.
2. $Global X Japan Global Leaders ETF(03150.HK)$: Tracking the FactSet Japan Global Leadership Index, investors can invest in 20 of Japan's leading global companies across different industries, covering consumer electronics, computers, automobiles, semiconductors and medical devices. The ongoing charge for one year is 0.68%.
3. $CSOP Nikkei 225 Index ETF(03153.HK)$: Launched in Hong Kong at the end of January 2024 by South East England (CSOP), it is Hong Kong's first ETF to track the Nikkei 225 index. The ETF's listing price is set at HK$78 per unit, with a minimum trading unit of 10 shares and an annual management fee of 0.99% of the fund's net asset value.
Second, ETFs in the US stock market:
1. $iShares MSCI Japan ETF(EWJ.US)$: Provides a way to invest in the Japanese stock market and track the MSCI Japan Index.
2. $WisdomTree Japan Hedged Equity ETF(DXJ.US)$ : This ETF not only invests in the Japanese stock market, but also reduces the impact of exchange rate movements by hedging yen exchange rate risks. This ETF is the most anticipated for investors who participate in Japanese ETFs and investors who are worried about a devaluation of the exchange rate.
3. $Ishares Jpx-Nikkei 400 Etf(JPXN.US)$: Invest in high-quality Japanese companies included in the JPX-JPY 400 Index, covering multiple industries.
4th. $JPMorgan BetaBuilders Japan ETF(BBJP.US)$: Tracks the Morningstar Japan Target Market Exposure Index, providing a wide range of exposure to the Japanese stock market.
5. $Vanguard FTSE Pacific ETF(VPL.US)$: Track the FTSE Japan Index, including companies of various sizes listed on Japanese stock exchanges.
Third, the current investment in Japanese ETFs is the exchange rate risk.
The level of economic development, market size, political stability, and regulatory environment in different countries and regions have a significant impact on the performance of overseas and cross-border ETFs. Therefore, it is essential to study the macroeconomic conditions, monetary policy, trade relationships, and potential risks before investing.
For Japanese equity ETFs, the easiest risk to incur losses is currency exchange rate risk.
with$CSOP Nikkei 225 Index ETF(03153.HK)$For example:
Its underlying assets are priced in yen, which means that the fund invests in stocks of Japanese companies that are priced in yen. However, in Tier 1 markets, these transactions are made in the form of US dollars being converted into yen when investors want to increase their investment (cash application) or withdraw from the investment (redemption of a share) to the fund.
IN ADDITION, THE FUND DISTRIBUTES DIVIDENDS TO INVESTORS, IF ANY, IN HONG KONG DOLLARS. This means that the fund's net worth is affected by fluctuations in the USD/JPY exchange rate: if the dollar appreciates or depreciates against the yen, the value of the fund's assets may rise or fall.
In the second-tier market, namely the Hong Kong Stock Exchange, investors buy and sell the units of this ETF are traded in HKD. Therefore, for investors who buy and sell this fund in the Hong Kong stock market, they should not only watch the performance of the fund itself, but also pay attention to changes in the exchange rate between the HKD and the yen. Because exchange rate fluctuations can cause them to incur additional costs or losses when buying and selling funds, even if the fund's own performance remains stable, it can affect the final return on investment due to exchange rate factors.
Therefore, in the face of exchange rate risks when investing in Japanese equity ETFs, from our research, the easiest way to invest in ETFs that choose exchange rate hedges directly is to avoid the risk of depreciation. However, “there are two sides to a coin”, on the other hand, if the yen continues to rise, there is potential upside. Decrease in earnings.
