This Non-US Developed Market Could be a Big 2020 Winner | ETF Trends

Once again, the U.S. is getting all the love among major developed equity markets this year and rightfully so with the S&P 500 higher by 26.23%. However, Japan has been a decent performer, too, and that theme could continue in 2020.

The iShares MSCI Japan ETF (NYSEArca: EWJ) and the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) are both up more than 18% year-to-date.

“An expected recovery in Japanese corporate earnings will drive their stock prices higher, predicted Morgan Stanley, UBS, and Nomura,” reports CNBC. “That comes after two consecutive years of earnings declines in Japan, due largely to a stronger yen and U.S.China trade tensions, said UBS.”

The iShares MSCI Japan ETF is the largest Japan-related ETF by assets, following a traditional market capitalization-weighted indexing methodology.

A fund such as the WisdomTree Japan Hedged Equity Fund can help investors gain exposure to Japan’s local markets without worrying about potential foreign exchange currency risks in case of a weakening yen currency or stronger U.S. dollar.

Jumping For Japan

Japan itself is recovering from its own economic doldrums with employment rates and wage growth starting to come to life. This is a welcome sign, particularly after the last 30 years have been marked by stagnant growth following an asset bubble burst that spawned the “Lost Decade” of Japan in the early 90s to the early 2000s.

“Economists from Morgan Stanley have even forecast zero growth in Japan in 2020. But the bank’s equity analysts said ‘positive structural trends’ in the country — such as improving corporate governance and profitability — could help Japanese stocks to maintain or increase their value,” according to CNBC.

Japan does show some solid fundamentals. Specifically, the weaker yen, strong corporate fundamentals, bargain valuations and central bank buying are all positives. Furthermore, Japan’s political temperature is relatively stable. Additionally, stocks in the world’s third-largest economy are inexpensive relative to their U.S. counterparts.

“In addition, the U.S. dollar is expected to edge higher versus the Japanese yen by March 2020, said Nomura. That would benefit Japanese companies that generate income overseas, such as exporters, according to the bank,” reports CNBC.

For more information on the Japanese markets, visit our Japan category.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.