Donald Trump’s surprising victory in last month’s U.S. presidential election has been widely cited as a catalyst behind the recent surge in U.S. stocks, a thesis that is a sharp reversal from pre-election speculation that stated Trump would harm an array of asset classes, including equities.
However, Trump’s stunning win is lifting more than just U.S. stocks. Among ex-US developed markets, Japan is experiencing a significant equity market rally as the yen tumbles in the wake of Trump’s win.
Not surprisingly, yen weakness is boosting Japanese equities and the relevant ETFs trading in the U.S. Market observers argue that the greenback will maintain its momentum as more traders anticipate the Federal Reserve to hike interest rates 25 basis points in December.
The iShares MSCI Japan ETF (NYSEArca: EWJ) is the largest Japan ETF trading in the U.S., but EWJ is not a currency hedged fund. Currency hedged Japan ETFs include the iShares Currency Hedged MSCI Japan ETF (NYSEArca: HEWJ) and the Deutsche X-trackers MSCI Japan Hedged Equity ETF (NYSEArca: DBJP). The currency-hedged ETFs are outperforming non-hedged funds as the local currency depreciates against the U.S. dollar.
Trump is not the only potential catalyst for Japanese stocks and the aforementioned ETFs.
“Yet other factors support a more upbeat outlook for Japan. Not least is its own fiscal stance. In its forecasts, Morgan Stanley noted that a fiscal stimulus package passed by parliament in October, including money for infrastructure and earthquake relief, will be spent over the next two years,” reports Bloomberg.
A depreciating yen is supporting Japanese markets as a weaker currency bolsters the country’s large export industry. Japan currency-hedged exchange traded funds are rebounding as rising speculation of a Federal Reserve interest rate hike later this month fueled a strengthening U.S. dollar and depressed the yen currency.
“Stronger U.S. demand for imports was one reason the Organization for Economic Cooperation and Development recently lifted its global growth forecasts for 2017. The OECD expects a rebound in international trade to drive Japan’s export growth higher over the next two years, with the economy growing 1 percent next year before slowing to a 0.8 percent expansion in 2018,” according to Bloomberg.
For more information on the Japanese market, visit our Japan category.