have been leading the market higher for much of 2013. The space
was in focus thanks to 'Abenomics' and a concentrated effort by
the nation's central bank to weaken its currency and shock the
markets back into a state of growth.
In the last few months, this policy was certainly having a
large impact on the market, as Japanese shares soared and the yen
plunged against the dollar. This led many to believe that Japan
was back on track and that nothing could stop the country from
returning to economic prominence (read
Invest Like Mark Cuban with these ETFs
Nothing Goes Straight Up
However, this incredible run-which saw major Japan ETFs surge
by over 30% in the last six months-has been under some pressure
as of late, as demand for profit taking intensifies, and concerns
grow over the real health of many economies. These worries came
to a head after the latest Fed minutes release, leading to a one
session loss of 7% for the Nikkei, marking one of the worst days
in the Japanese markets in years.
There were a number of factors that led to a horrendous day in
Japan, coming from a variety of markets. First, the uncertainty
over the Fed's policy in the near term was definitely a catalyst,
as some grew worried over a tapered bond buying program in the
U.S. and its impact on Japanese securities.
Furthermore, Chinese PMI figures came in below 50, meaning
that the nation's manufacturing segment is in a state of
contraction. This cast a shadow over the rate of growth in key
Asian growth markets, which are becoming increasingly important
for Japan and the nation's exports.
Lastly, investors also witnessed some pretty extreme
volatility in the Japanese government bond market as well. This
segment saw yields on the benchmark 10-year rise to just shy of
1.0%, before retreating all the way back to the 0.85% mark (read
Japanese Bond ETF Investing 101
This confluence of factors led to some severe profit taking in
the Japanese market, especially considering that the Nikkei was
actually up a few percentage points in the early part of trading
today. However, this obviously didn't last, leading to one of the
worst days in Japanese markets since the 2011 earthquake and
ensuing Fukushima nuclear incident.
Unsurprisingly, this horrendous trading made for an extremely
bad day in the Japanese ETF world. Funds in this space also saw
big losses on huge volumes, stopping cold their recent winning
iShares MSCI Japan Index Fund (
WisdomTree Japan Hedged Equity Fund (
Maxis Nikkei 225 Index Fund (
WisdomTree Japan Small Cap Dividend Fund (
ProShares Ultra MSCI Japan (
ProShares UltraShort MSCI Japan Fund (
As you can see, the terrible trading was pretty widespread on
the session, impacting broad market funds, large cap focused
ones, and small cap-centric products as well. Interestingly,
small caps did among the worst on the day, while the hedged
products-thanks to a surge in the yen-were also big losers on the
Which is the Better Hedged Japan ETF?
While some might be panicking about Japan at this time, it is
important to remember the longer term history for Japanese ETFs.
The run in this market has been pretty incredible over the past
few months, and especially so for a developed market country in
today's low growth environment.
Given this, it isn't that surprising that we had a big
sell-off in Japan ETFs, as one was probably long overdue. One
cannot expect a huge market like Japan to surge to such
impressive heights without at least a few bumps along the way,
and that is definitely what we have seen in recent trading in
We are still optimistic on Japan ETFs in the near term, as we
have top Zacks ETF Ranks on a number of products in the space.
The thinking here is that the easing measures still have a bit of
room to run, and a stock boost is definitely possible in the near
term given the concentrated QE effort (see the
list of Top Ranked ETFs
So consider the recent bout of terrible trading as a possible
entry point if you are still thinking about getting in on Japan,
as the country could certainly rebound in the weeks ahead. This
could be especially true once worries over U.S. QE and sluggish
emerging market data blow over, allowing Japan ETFs to resume
their impressive ascent once more.
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WISDMTR-JP SC D (DFJ): ETF Research Reports
WISDMTR-J HEF (DXJ): ETF Research Reports
ISHARS-JAPAN (EWJ): ETF Research Reports
PRO-ULS MSCI JA (EWV): ETF Research Reports
PRO-ULT MSCI JA (EZJ): ETF Research Reports
CRYSHS-JAP YEN (FXY): ETF Research Reports
MAXIS-NIK 225 (NKY): ETF Research Reports
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