After running in place for much of this year, Japan’s exchange traded funds (ETFs) look like they’re mounting a comeback. But will it stick?
The Nikkei is heading into 2011 on a bullish note, and some analysts expect the benchmark index to rise about 20% next year.
A recent Reuters poll shows Japanese stocks are likely to end next year roughly 17 % above current levels, helped by a recovery in the U.S. economy and rising demand from emerging markets. [Japan ETF: Don’t Call a Turnaround Just Yet.]
Further, Japan’s own production is strengthening. According to NZHerald, factory output is up 1%, and the demand is coming largely from drive overseas.
If you’ve been waiting on a turnaround in this flagging economy, the recent moves and forecasts might just be the buying opportunity you’ve been looking for, reports NTD Television. There’s still room for more, too: iShares MSCI Japan (NYSEArca: EWJ) is still 30% below its February 2007 high. The top-performing Japan ETF in the last six months, however, has been WisdomTree Japan High-Yielding Equity (NYSEArca: DNL), which is up 26.7%. [Japan’s ETF and Sentiment Rises.]
The Daily Crux reports that EWJ is on an uptrend from December 2009 highs and over its April 2010 highs as of this week. Technical indicators are strong and so investors should watch the trend lines and follow up with a strategy is they decide to invest in this country. A stop loss in place can help keep any losses to a minimum, while playing any upside potential.
One risk to Japan’s economy still hangs around, though: the strong yen, which has been a thorn in the country’s side all year. CurrencyShares Japanese Yen (NYSEArca: FXY) is up nearly 14% this year, and it’s having the negative effect of making Japan’s exports more expensive. If it keeps getting stronger, EWJ could suffer.
Read the disclaimer; Tom Lydon is a board member of Rydex|SGI.
Tisha Guerrero contributed to this article.