In response to ongoing global volatility, notably lingering uncertainty in China, international investors may want to stick to more stable markets, like Japanese equities and country-specific exchange traded funds.
Dan Chamby, who helps manage a $90 billion BlackRock global strategy, said he is overweight Japan and the U.S. dollar after the recent bout of global market volatility, Bloomberg reports.
After the major sell-off in Chinese markets, BlackRock warned of increased volatiltiy ahead due to a potential slowdown in China’s economy and an end to record low interest rates.
Consequently, the BlackRock money manager overweights the steadier Japanese market, including a 12% tilt toward Japan, compared to the 4.5% of its reference benchmark.
Chamby pointed out that after two decades of declines in the Japanese equities market, Japanese companies have greatly reduced debt and accumulated cash. Consequently, the firms look attractive as Prime Minister Shinzo Abe pushes for better corporate governance, which could lead to greater shareholder value.
“There are so many opportunities across so many different parts of the market; it’s not just one sector that we are interested in,” Chamby told Bloomberg. “This is a market that can continue to rise over the next several years, not just the next several months.”
Given BlackRock’s tilt toward the U.S. dollar and preference for Japanese equities, ETF investors can also track BlackRock’s position through currency-hedged Japanese stock ETFs.
Currency-hedged Japan ETF options include the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ), iShares Currency Hedged MSCI Japan ETF (NYSEArca: HEWJ) and Deutsche X-trackers MSCI Japan Hedged Equity ETF (NYSEArca: DBJP).
DXJ tries to reflect the performance of the WisdomTree Japan Hedged Equity Index, which tracks dividend-paying Japanese companies that generate the majority of revenue outside of Japan and hedges against a weak yen currency.
HEWJ holds the iShares MSCI Japan ETF (NYSEArca: EWJ) but uses currency swaps to diminish currency risks.
DBJP tries to reflect the performance of the MSCI Japan US Dollar Hedged Index, which also tracks Japanese equities and mitigates exposure to fluctuations between the U.S. dollar and yen.
For more information on Japan, visit our Japan category.
Max Chen contributed to this article.