Potential Opportunity
Another hedge fund investor, Mark Yusko, recently wrote about continuing to favor financials and exporters in Japan. He stated, “I am always struck that investing, oddly, is the only business I know where when things go on sale, people run out of the store, and the further the prices fall, the further they run. We are very content to stay in the Japanese equity store and continue to accumulate shares of great businesses at cheaper prices in a market that we anticipate will be the best performing developed market over the coming decade.”6
Japan is one of the lowest-priced regional markets on a price-to-earnings basis and the only market that actually had earnings outpace price gains over the most recent year.7 I believe equity markets will remain supported as Abenomics continues to gain traction and especially as Abe makes more progress on his growth strategy for Japan (the “third arrow” of Abenomics). While broad-based approaches should continue to serve many investors well, those looking to allocate to the lowest-priced sector of the Japanese market should look to financials.
For current holdings of the WisdomTree Japan Hedged Financials Index click here.
1Sources:WisdomTree, Bloomberg, 04/30/14
2Source: Greenlight Capital, Q1 2014 Investor Letter
3Sources: WisdomTree, Bloomberg, 12/31/13-04/30/14
4Sources: Bloomberg, 04/30/14
5Sources: WisdomTree, Bloomberg, 12/31/13-04/30/14
6Source: Morgan Creek Capital, Q4 2013 Market Review & Outlook
7Sources: WisdomTree, Bloomberg, 04/30/13-04/30/14
Important Risks Related to this Article
Investments focused in Japan may increase the impact of events and developments associated with the region, which can adversely affect performance. Foreign investing involves special risks, such as risk of loss from currency fluctuation or political or economic uncertainty.