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Japan ETFs
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About Japan ETFs |
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Japan ETFs Overview and forecast
Japan's ailing economy and the Nikkei's neurotic indices are well known to investors. The Nikkei has come a long way down from its glory days, and investors are generally skeptical of the Japanese investment market as a result. Ironically, that's turned out to be a mistake in early 2009, in the case of the Japanese ETFs.
It's interesting to note that an ETF like SPDR Russell/Nomura PRIME Japan ETF (AMEX:JPP) has attracted little or no interest from traders in 2009, despite a solid 50% rise in prices off their lows on almost non-existent volumes. Several other Japanese ETFs have performed similarly, and on the same low volumes. It would appear that neither investors or traders are in the Japanese ETF market, and nobody's paying much attention to things like that.
Well, the investment markets have never been called infallible. The reason for the lack of interest seems to be the dismal performance of the Japanese markets during the crash. Japan has been in a prolonged recession for nearly a decade, and its economy has contracted sharply. The equally prolonged doom and gloom has definitely taken the edge off interest in the Nikkei, which has shriveled in the recession.
Short term (6 months)
The overall view of the Japanese economy is basically pretty right. It's obvious Japan will not be returning suddenly to boom era statistics any time soon. The Japanese ETFs, however, have shown definite resilience, and that may be because of their holdings. The main index Japanese ETFs hold nearly all major heavyweight stocks, usually in relatively conservative mixes.
This current trading pattern, ironically, is very much like their pre 2007 trading pattern, which was relatively steady. These aren't bad investments, in terms of mixes or holdings. The short term gain, in this case, looks based on private investment, rather than traders. The low volumes mean no institutional buying is involved. The short term forecast, therefore, has to be a slow, unreliable, upside, subject to the Nikkei and yen movements.
Medium term (2 years)
It's fair to say that the Japanese ETFs have a comparatively positive upside in the medium term. They hit lows which knocked an average of 20% off their pre 2007 prices, after which, through the 2007- 2008 period, at their peak, they went into a solid 2 year decline. Some ETFs dropped nearly 50%. These price levels are likely to revive in the medium term, if slowly.
By the same token, Japan's turgid economy and domestic economic issues have been chronic problems for quite a while. The dismantling of the former economic structures has turned out to be a colossal mistake. There is no reason to believe Japan will get out of the hole it's dug for itself in a hurry, and that will directly impact the Japanese investment market.
Long term (5 years)
The longer term is the only realistic time frame for a turnaround in the Nikkei and a return to something resembling a working capital market trading process. The plausible scenario for an improvement in Japanese indices also requires an improvement in global trade. Japan and China have been very much in lock step with their production policies, but the drastic drop in demand has been a serious further blow to Japanese corporations.
The long term upside is therefore based on a requirement for a raft of developments, and the Japanese ETFs are likely to follow their indices faithfully, either way, in the interim. Investors are advised to use discretion, and risk assessment will be required.
Qualifiers to projections
The Japanese market is quite capable of producing and sustaining good prices and returns for the Japanese ETFs. The Nikkei alone is capable of producing significant upward valuations if it approaches a return to median prices for the holdings of the Japanese ETFs. Sheer lack of credibility in the Japanese indices have been no great help to these ETFs, despite their otherwise strong recovery.
The issue for investors is whether to trust the current investment environment to improve. The Nikkei's tendency to spasmodic movements and sudden downturns does justify the apparent lack of interest in the Japanese ETFs, despite holdings which would normally be considered good mixes of assets. It looks like that for the time being, investors and traders have decided enough is enough.
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Last Updated on: 2010-01-14 02:03:40 |
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