Year to date (YTD) in 2019, Japanese stocks have lagged behind their American counterparts as economic indicators point to a worsening situation in the Land of the Rising Sun. The Nikkei 225 (N225), the top-ranking and most prestigious stock index in the nation, is up 6.22% year to date, or nearly half as much as the gains made by the S&P 500 Index over the same time period.
The four-day state visit that President Trump made to Japan over the weekend may be precisely what Japan’s stock market needs in the coming months. The American president expressed his reservations about the unequal trade balances between the two nations, but he remained optimistic about reaching a mutually beneficial trade agreement with Japan.
Trump said on Monday, according to CNBC, “trade-wise, I believe we’ll be announcing certain things, maybe in August, that will be extremely advantageous for both nations.” We’ll quickly correct the trade balance, in my opinion, he continued.
With the help of these three Japan exchange-traded funds, traders who predict a rise in Japanese stocks ahead of a potential U.S. trade agreement later this summer may play the move (ETFs).Let’s examine each fund in further depth and go through a few swing trading possibilities.
iShares MSCI Japan ETF (EWJ)
The iShares MSCI Japan ETF (EWJ), which was established in 1996, aims to provide investment outcomes that are comparable to those of the MSCI Japan Index. Approximately 85% of the Japanese equities market is reflected in the benchmark. The financial, consumer cyclical, and industrial sectors are preferred by EWJ, with allocations of 27.02%, 18.82%, and 14.75%, respectively. Toyota Motor Corporation (TM), SoftBank Group Corp. (SOBKY), a global conglomerate, and electronics giant Sony Corporation are significant holdings in the portfolio (SNE).The fund is suitable for all trading types, with an average daily share volume of over 8 million and a spread that is just 0.02%. the 28th of May 2019. EWJ is up 5.21% YTD, with a massive $14.27 billion asset base, and a dividend yield of 1.57%.
Between October and March, the EWJ share price exhibited an inverted head and shoulders pattern. Early in April, the fund broke above the neckline of the pattern, but further gains have not materialized. Instead, the right shoulder of the chart pattern, which has offered momentary technical support around $53, has seen a price retracement. In the trading session on Friday, the ETF surged from this level, suggesting that the price may have hit a temporary bottom. Investors should watch for a move up to $56, where a horizontal trendline that dates back over the last 12 months provides major overhead resistance. Put a stop-loss order in place under the $52.76 low for this month.
iShares Currency Hedged MSCI Japan ETF (HEWJ)
The iShares Currency Hedged MSCI Japan ETF (HEWJ), which has $554.58 million in assets under management (AUM), is a hedged version of EWJ that seeks to provide returns that match the MSCI Japan 100% Hedged to USD Index. The fund uses currency forward contracts to completely hedge its exposure to the Japanese yen compared to the U.S. dollar, making it a great tool for traders who wish to minimize currency risk. A narrow average spread of 0.03% and daily trading volume of around 600,000 shares per day help to keep trading expenses to a minimum for this ETF. As of May 28, 2019, HEWJ has a competitive 0.48% management fee, a 1.23% dividend yield, and a 6.73% YTD performance.
Due to the identical tracking indices, the HEWJ chart closely resembles the EWJ cart. The $29.50 level, which approximately correlates to the left shoulder of a six-month inverse head and shoulders pattern, provided support for this month’s downturn. With a reading of the relative strength index (RSI) below 50, the price has plenty of space to advance into important resistance around the $31.50 level. If the fund’s price falls below the low set on May 13 at $29.30, those who initiate a long position here should consider cutting their losses.
WisdomTree Japan SmallCap Dividend Fund (DFJ)
In an effort to replicate the performance of the WisdomTree Japan SmallCap Dividend Index, the WisdomTree Japan SmallCap Dividend Fund (DFJ) was established in 2006. The underlying index, which weights constituents according to cash dividends earned during the previous calendar year, monitors dividend-paying small-cap firms. With allocations of 26.56% and 22.22%, DFJ offers traders strong exposure to the industrial and consumer cyclical sectors. Just 6.01% of the ETF’s total holdings are in its top 10 positions, ensuring a balanced distribution among a large group of 810 stocks. As of May 28, 2019, DFJ has net assets of $592.01 million, yields 1.78%, and is trading up 1.20% year over year.
For the most of 2019, the ETF’s price has fluctuated within a four-point range. Early in May, the price fell below this consolidation zone, but it has since steadied. The fund may challenge the top of the previous trading range and the 200-day simple moving average (SMA) at the $69 level as a result of Friday’s 1.79% increase. Those who decide to trade should place a stop below the most recent low, which was $64.57 on May 23. The risk/reward ratio for a fill at Friday’s closing price of $65.80 is 1:2.6 ($3.20/$1.23).
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