Mid-term elections in Japan are presenting opportunity with ETFs, such as the Deutsche X-trackers MSCI Japan Hedged Equity ETF (NYSEArca: DBJP).
Leading up to Sunday’s election, Japanese companies preferred to see Prime Minister Shinzo Abe’s party retain power. Abe’s Liberal Democratic Party-led (LDP) coalition won a combined 312 seats, keeping its two thirds “super majority” in the 465-member lower house, local media said.
“Many companies in the survey expressed concern that a big election win would encourage Abe to invest his energy in a long-held ambition to revise Japan’s pacifist constitution, at the expense of economic policy,” according to Reuters.
DBJP, home to nearly $1.7 billion in assets under management, “seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI Japan US Dollar Hedged Index. The index is designed to provide exposure to Japanese equity markets, while at the same time mitigating exposure to fluctuations between the value of the U.S. dollar and Japanese yen,” according to Deutsche Asset Management.
The ETF holds 323 stocks. DBJP allocates about 40% of its combined weight to the industrial and consumer discretionary sectors.
DBJP has delivered a solid performance even in the face of the U.S. dollar slumping and the yen being solid. Japanese stocks are usually adversely affected by a stronger yen due to the economy’s high dependence on exports. Importantly, Japanese stocks are attractively valued relative to other developed markets.
“Forecasts published last week predicted Abe’s coalition would win around 300 seats, close to the two-thirds super-majority it held before he called the election. Along with like-minded parties, the LDP bloc also has a majority in the upper house, which would be needed to revise the constitution,” reports Reuters. “However, some 48 percent wanted his bloc to obtain a smaller majority, while 20 percent hoped the ruling camp would retain the 323 seats it held before the lower house was dissolved last month. Seven percent wanted the ruling bloc to win more seats.”
Related: As USD Strengthens, Currency Hedged ETFs Require a Second Look
Japanese equities also show more attractive valuations, compared to the pricier U.S. markers. For instance, EWJ shows a 15.42 price-to-earnings and a 1.2 price-to-book, whereas the S&P 500 index is trading at a 18.9 P/E and a 2.6 P/B.
DBJP jumped 2.5% last week and is higher by 4.5% over the past month.
For more information on the Japanese market, visit our Japan category.