Investing in Japan with Exchange Traded Funds

Japan has faced a series of crises during the past six weeks: earthquakes, a tsunami and a continuing nuclear leakage challenge. We marvel at the people of Japan who have faced the disasters with a sense of calm and hope for recovery. The Nikkei Average ($NIKK 9,591.51) quickly fell 21% following the earthquake and subsequently regained three quarter of the decline in anticipation of a rebound in Japan’s economy. Is now the time to invest in Japan in anticipation of an economic recovery or will a better opportunity arrive at a later date?

Investing in individual Japanese stocks at present is a challenge. Full impact of the disasters remains unknown. Some companies are not expected to become fully operational for weeks or months. Others are expected to benefit from the recovery. The easiest way to invest in Japan is through Exchange Traded Funds (ETFs) that track the performance of a basket of stocks.

Six ETFs trading on North American equity markets track a basket of broadly based Japanese securities. Each ETF has unique characteristics.

Best known and most liquid Japanese ETF is iShares on the MSCI Japan Index Fund (EWJ $10.03). The Fund holds 323 big cap equity positions listed on Japanese exchanges. It closely tracks the Nikkei Average with its 225 equity positions. Management expense ratio is 0.54 percent.

iShares also sponsors an ETF on the MSCI Japan Small Cap Index Fund (SCJ $44.09). The Fund holds 656 small cap equity positions listed on Japanese exchanges. Management expense ratio is 0.53 percent. Units are thinly traded

iShares also sponsors an ETF on the S&P TOPIX 150 Index Fund (ITF $43.65). Units track Japan’s TOPIX Index, the second best known Japanese equity index. The Index holds 150 big cap stocks listed on Japanese exchanges. Sector weights are remarkably similar to sector weights in iShares on the MSCI Japan Index Fund. Industrials have a slightly heavier weight and consumer discretionary; financial services and information technology sectors have a slightly lighter weight. Management expense ratio is 0.50 percent.

State Street Global Investors offers the SPDR Russell/Nomura PRIME Japan Fund ETF (JPP $38.05). The Fund is capitalization weighted and holds 400 big cap stocks listed on Japanese exchanges. Management expense ratio is 0.50%. Units are thinly traded.

State Street Global Investors also offers the SPDR Russell/Nomura Small Cap Japan Fund ETF (JSC $41.08). The Fund holds 400 small cap stocks listed on Japanese Exchanges. Management expense ratio is 0.55%. Units are thinly traded.

Claymore Investments Canada offers the Claymore Japan Fundamental Index Fund Canadian Dollar Hedged ETF (CJP $8.35 Cdn.). The fund holds 222 big cap stocks listed on Japanese exchanges. Sector weights are slightly higher than the MSCI Japan Index Fund in the consumer discretionary sector and slightly lower in the industrial, financial services and information technology sectors. Units trade on the Toronto Exchange in Canadian Dollars. Management expense ratio is 0.65% plus tax. Units are thinly traded.

The Nikkei Average has a history of moving higher from mid November to the end of April. Average return per period during the past 20 periods 7.2 percent. From the end of April to the middle of November, the Average has consistently has moved lower during the past 20 periods.

On the charts, the Nikkei Average has a mixed technical profile. It found resistance during the past three weeks near its 50 day moving average currently at 9,808. Strength relative to the S&P 500 Index has been neutral during this period. Short term momentum indicators are neutral.

Preferred strategy is stay away from Japanese equities and related ETFs until November when seasonal influence turn positive and reconstruction following the disasters starts to ramp up.

Chart courtesy of www.equityclock.com

Don Vialoux is the author of free daily reports on equity markets, sectors, commodities and Exchange Traded Funds. Reports are available at www.timingthemarket.ca. Mr. Vialoux also is a research analyst at Jovinvestment Management advising on the Horizons AlphaPro Seasonal Rotation Exchange Traded Fund.

Gold Explodes On S&P Downgrade Warning

Who would have thunk that the one beneficiary of an insolvent US (with both bonds and stock futures plunging) would be gold. Oh wait…

04/18/2011 S&P just revised its US outlook to negative. EURUSD surges on what can be seen as revolutionary news..

Richard Russell’s Analysis from Friday:

In the meantime, the real news is the new record high in gold. The chart below shows the bullish ascending triangle in gold and the breakout to new highs. I thought that gold would come down to test is breakout level at the horizontal blue line, but evidently gold is so strong that instead of testing it breakout level (which is now support), gold went on to register new all-time highs. RSI is nearing the overbought level, and MACD remains bullish. Gold is trading bullishly above its 50-day moving average and far above its 200-day MA.

The daily chart of silver below shows silver in fantastic rising channel. RSI is severely overbought, and MACD remains in its bullish mode. Meanwhile, silver continues to climb, recording its highest levels in 31 years. Those who have bought silver and shorted gold have enjoyed a profitable play, but now’s the time to be careful with this trade.

The chart below shows the ratio of gold to silver. When the ratio descends, it shows that one ounce of gold buys fewer ounces of silver (silver gaining strength over gold). RSI indicates that this ratio is now overdone, so we might expect a short-term correction in favor of gold.

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