Japanese equities and country-specific exchange traded funds have suffered through the recent global sell-off, but the developed Asian market could turn around and end the year on a high note.
Year-to-date, the iShares MSCI Japan ETF (NYSEArca: EWJ) fell 10.6%, Deutsche X-trackers Japan JPX-Nikkei 400 Equity ETF (NYSEArca: JPN) dropped 9.8% and iShares JPX-Nikkei 400 ETF (NYSEArca: JPXN) is 10.0% lower.
The CurrencyShares Japanese Yen Trust (NYSEArca: FXY), which tracks the movement of the Japanese yen against the U.S. dollar, gained 7.2% so far this year, with the U.S. dollar trading at ¥111.7, as traders turned to safe-haven assets.
Meanwhile, currency hedged ETFs, which diminished the negative effect of a weaker yen currency, underperformed non-hedged funds. For instance, the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) decreased 17.7%, iShares Currency Hedged MSCI Japan ETF (NYSEArca: HEWJ) retreated 17.1% and Deutsche X-trackers MSCI Japan Hedged Equity ETF (NYSEArca: DBJP) declined 17.1%.
Nevertheless, Stephen Parker of JPMorgan Private Bank argues that Japanese market could stage a huge comeback and end 2016 in the green, reports Stephanie Yang for CNBC.
Parker points out that the corporate environment is experiencing a “major change” as executives prioritize shareholder returns, which could lead to greater dividends and share buybacks. Japanese firms have hoarded almost three times as much cash as a percentage of market cap, compared to U.S. companies, and they are on track for a record-breaking year of buybacks, according to Parker.