May 22, 2019 | 05:58 AM


29.11.2013How To Trade The Revival Of Japanese Equities

For almost two decades, Japanese equities were in a bear market

Panos Mourdoukoutas, Forbes.com

Disclosure: Long DXJ shares

For almost two decades, Japanese equities were in a bear market—among the worst in modern history. Following the assumption of leadership by Prime Minister Shinzo Abe Japanese equities have made a strong comeback.

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Keeping up with his election campaign promises, Mr. Abe has launched a $117 billion fiscal package to revive the country’s ailing economy; and has directed Bank of Japan to unleash a yen tsunami to push the country from deflation to inflation.

These bold policy initiatives are a game changer for Japanese equities, especially the stocks of major exporters that are to benefit from the weakening yen.

How can investors trade the Japanese Tsunami?

Here are four trades to consider:

1.Short the Japanese Currency Yen Trust  (NYSE:FXY)—the fund is already down 20 percent in the last twelve months, but the trend may just beginning.

2. Buy WisdomTree Japan Hedged Equity (NYSE:DXJ)–a fund that tracks the price and yield performance, before fees and expenses, of the WisdomTree Japan Hedged Equity Index. The fund pays 1.01% dividend and is currency neutral for US investors.

3. Japan Smaller Capitalization (NYSE:JOF) –A closed-ended fund that invests in smaller high technology companies. The fund pays near 1% dividend and allows investors to take advantage of high tech boom in the Nagoya and Tokyo areas where many of these companies are allocated.

4. Buy Japanese exporters like Kubota Corporation (NYSE:KUBTY). The company is a manufacturer of a broad array of construction equipment, agricultural, machinery, waste and environmental gear, including iron and plastic pipes and filters, water treatment systems, drainage systems, water supply systems, etc.   It is expected to benefit from a weakening yen, which will make its products more competitive in world markets.

A few words of caution: Abe’s bold policies set the world economy up for a perfect storm. The yen tsunami will collide with the dollar and the euro tsunamis, fueling a currency war that may end in an open trade war that will slow-down or even reverse globalization, as major economies try to export their way out of stagnation—a nightmare scenario for financial markets. Hype should never be a substitute for due diligence, especially after the big run up in Japanese equities in the last year.

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