Traders eyeing the Direxion Daily Japan Bull 3X ETF (NYSEArca: JPNL) may be taking notice of the market buzz surrounding the country’s improving economy, but trade wars between the United States and China could still weigh heavily on the leveraged ETF.
Amid the trade scuffle between the U.S. and China, discussions between Japanese Prime Minister Shinzo Abe and U.S. President Donald Trump regarding trade have largely been positive. Both leaders have managed to eschew the back-and-forth barbs that President Trump and Chinese President Xi Jinping have been exchanging on the topic of trade.
Both leaders are expected to meet at the G-20 Summit in Buenos Aires at the end of this month, but in the meantime, JNPL traders can sleep easy knowing the Cabinet Office reported that the economy is improving.
“The Cabinet Office maintained its headline assessment that the economy ‘is recovering at a moderate pace’ in the November edition of its monthly economic report and held to its views on key elements including private consumption, capital spending and exports,” a Japan Times report noted.
The JPNL ETF seeks daily investment results equal to 300% of the daily performance of the MSCI Japan Index. The index itself is designed to measure the performance of the large- and mid-cap segments of the Japanese equity market, covering approximately 85% of the free float-adjusted market capitalization of Japanese issuers.
Near the end of a tumultuous October month for investors in U.S. equities until now, JPNL gained 3.2%. While U.S. stocks have been languishing, a flight to Japanese equities could be materializing as the U.S. begins to show signs of its late market bull run ending while Japan’s economy begins to rally.
Still, the topic of trade wars will be a major driver for JPNL and as such, traders should take heed as the U.S.-China negotiations unfold.
“Attention should be given to risks including the effects of situations concerning trade issues on the world economy, the uncertainty in overseas economies and the effects of fluctuations in financial and capital markets,” Japan’s Cabinet Office said.
A rise in market sentiment can fuel more overseas investing by the Japanese, which was evident during a September that saw a marked increase in U.S. bond purchases as investors snatched up a net 2.28 trillion yen ($20 billion) of the debt based on a balance-of-payments data from the Asian nation’s Ministry of Finance. The bond buying wasn’t just relegated to United States Treasuries as Japanese investors were also large buyers of debt in European countries like Germany, Spain and France.
Related: Japan ETFs Brush Off Escalating Trade War Fears
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