Japan ETFs Poised for Possible Trump Trade Deal

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Japan ETFs Poised for Possible Trump Trade Deal

Year to date (YTD), Japanese shares have lagged their US counterparts, owing to economic data indicating a slowing economy in the Land of the Rising Sun. The Nikkei 225 (N225), the country’s biggest and most regarded stock index, has up 6.22% year to far, accounting for almost half of the gains registered by the S&P 500 Index during the same time.

President Trump’s four-day state visit to Japan over the weekend might be precisely what Japan’s stock market needs in the coming months. Despite voicing concerns about the two nations’ unfavorable trade balances, President Trump remained confident about reaching a mutually advantageous trade agreement with Japan.

“Trade-wise, I believe we’ll be announcing certain things, probably in August, that will be extremely advantageous for both nations,” Trump told CNBC on Monday. “I hope we’ll have the trade balance sorted up quickly,” he continued.

Traders who predict a rise in Japanese stocks ahead of a potential trade agreement with the United States later this summer might profit from the move by investing in these three Japan exchange-traded funds (ETFs).Let’s take a closer look at each fund and talk about some swing trading chances.

iShares MSCI Japan ETF (EWJ)

The iShares MSCI Japan ETF (EWJ), which was launched in 1996, attempts to produce investment outcomes comparable to the MSCI Japan Index. The benchmark approximates 85% of the Japanese equities market. EWJ prefers the industrial, consumer cyclical, and financial sectors, with allocations of 27.02%, 18.82%, and 14.75%, respectively. Toyota Motor Corporation (TM), international conglomerate SoftBank Group Corp. (SOBKY), and electronics behemoth Sony Corporation are among the portfolio’s key holdings (SNE).With over 8 million shares traded every day and an average spread of only 0.02%, the fund caters to all trading types. On May 28, 2019, EWJ has a massive $14.27 billion asset pool, a 1.57% dividend yield, and is up 5.21% year to date.

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Between October and March, EWJ shares developed an inverted head and shoulders pattern. The fund broke above the pattern’s neckline in early April, but has since failed to provide more gains. Instead, the price has retraced to the right shoulder of the chart formation, which has offered short-term technical support at $53. The ETF recovered from this level during Friday’s trading session, indicating that the price has reached a temporary bottom. Traders should watch for a run up to $56, where the price will face major overhead resistance from a horizontal trendline that dates back over a year. Set a stop-loss order below this month’s low of $52.76.


iShares Currency Hedged MSCI Japan ETF (HEWJ)

The iShares Currency Hedged MSCI Japan ETF (HEWJ) has $554.58 million in assets under management (AUM) and seeks to produce returns that correspond to the MSCI Japan 100% Hedged to USD Index, thereby making it a hedged version of EWJ. The fund uses currency future contracts to completely hedge its exposure to the Japanese yen compared to the US dollar, making it a suitable tool for traders looking to minimize currency risk. The ETF trades around 600,000 shares each day and has a narrow average spread of 0.03%, lowering trading expenses. As of May 28, 2019, HEWJ charged a competitive 0.48% management fee, paid a 1.23% dividend yield, and had a YTD return of 6.73%.

Because the tracking indices are comparable, the HEWJ chart closely resembles the EWJ cart. The support level for this month’s pullback was $29.50, which closely correlates to the left shoulder of a six-month inverse head and shoulders pattern. The relative strength index (RSI) is below 50, indicating that the price has plenty of space to rally toward critical resistance around $31.50. Those who take a long position in this fund should limit their losses if it fails to maintain the May 13 low of $29.30.

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WisdomTree Japan SmallCap Dividend Fund (DFJ)

The WisdomTree Japan SmallCap Dividend Fund (DFJ), which was established in 2006, seeks to replicate the performance of the WisdomTree Japan SmallCap Dividend Index. The underlying index measures dividend-paying small-cap firms, with components weighted according to cash dividends received in the previous calendar year. With allocations of 26.56% and 22.22%, respectively, DFJ offers traders with substantial exposure to the industrial and consumer cyclical sectors. The top ten holdings of the ETF account for just 6.01% of its portfolio, ensuring a balanced dispersion throughout a vast basket of 810 equities. As of May 28, 2019, DFJ had net assets of $592.01 million, a yield of 1.78%, and was trading up 1.20% year to date.

For the most of 2019, the ETF’s price has been within a four-point range. Price fell below this consolidation zone in early May, but it has since steadied. The fund’s 1.79% gain on Friday may cause a short squeeze, causing it to challenge the top of the previous trading range and the 200-day simple moving average (SMA) at $69 per share. Those that enter the trade should put a stop loss below the current low of $64.57 hit on May 23. A fill at Friday’s closing price of $65.80 offers traders a risk/reward ratio of 1:2.6 ($3.20/$1.23).


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