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Will New Prime Minister & Buffett's Bet Boost Japan ETFs?

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Japan’s investing backdrop could be under careful watch in the month of September as long-standing prime minister Shinzo Abe is about to step down. His policies known as “Abenomics” contributed a great deal in the past to Japan’s economic reform.

The Japanese economy came out of a prolonged deflationary spiral after Abe took office in 2013. A monetary and fiscal firepower introduced by Shinzo Abe to lift the world’s third-largest economy from feeble growth and deflationary pressure made this possible.

However, things are not looking bad as Japanese stocks got a boost to start September after Chief Cabinet Secretary Yoshihide Suga appeared as the leading candidate to replace the outgoing prime minister Shinzo Abe at a leadership election expected this month.

Will Suga Continue With Abenomics?

If Suga becomes the new prime minister, it would mean few major changes to the country’s economic policy and lesser chances of political instability, which are positives for equities, analysts said, as quoted on Reuters.In fact, expectations for policy continuity are encouraging some money managers to tag Japanese shares a buy, as quoted on Bloombergquint.

“Japan’s policy won’t change dramatically no matter who becomes the next prime minister as the ruling party is making decisions,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities Co. “There is a perception in the market that Abenomics will carry on if Suga becomes the prime minister” as quoted on Bloombergquint. Not only this, Suga seems to be a proponent of further low rates, which means more stock rally.

Buffett’s Bet on Japan

As another positive, Warren Buffett’s Berkshire Hathaway Inc. recently bought stakes worth $6 billion in five Japanese trading companies. These companies are Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co., and Sumitomo Corp. (read: Buffett Announces Stakes in Japan Trading Firms: ETFs to Watch).

The Japanese trading companies which are also known as “sogo shosha” are conglomerates that import various stuffs ranging from energy and metals to food and textiles into Japan, and provide services to manufacturers, according to a CNBC article.

Berkshire says it seeks to hold investments for the long term, and that it may increase its holdings in any of the companies up to a maximum of 9.9%, depending on price, noted the CNBC article.

Yen to be Under Control

With the risk-on sentiments taking control of global equities, the safe-haven currency yen should not gain much strength. This should be favorable for Japanese stock indexes, which are mostly export-centric. With the Fed looking steadfast to lift inflation in the medium term, the greenback may gain strength ahead and keep the yen a little subdued compared with the U.S. dollar.

Japanese Shares a Buy?

Nader Naeimi, the head of dynamic markets at AMP Capital Investors Ltd., says there is a “large degree” of continuity within the ruling party. Japanese auto, energy, industrial and transport names appear attractive as investing trend is shifting away from growth stocks, per Naeimi, quoted on Bloomberg. Nicholas Smith, a strategist at CLSA Securities Japan Co. also believes the same.

Against this backdrop, below we highlight a few Japan ETFs that could be snapped up ahead.

WisdomTree Japan Hedged Equity ETF (DXJ - Free Report) – Up 8.8% Past Month

iShares MSCI Japan Equal Weighted ETF (EWJE - Free Report) – Up 8.4% Past Month

WisdomTree Japan SmallCap Dividend ETF (DFJ - Free Report) – Up 7.7% Past Month

Xtrackers Japan JPXNikkei 400 Equity ETF  – Up 7.6% Past Month

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