Japan Is Cheap, But Watch The Yen
Benzinga | Dec 04, 2012 04:43PM ET
It has been a familiar battle cry for Japan bulls for what feels like ages now: Japanese equities are cheap on a valuation basis. The first problem is, due to unfavorable demographics and a severe bout with deflation, Japanese equities have been in a bear market for well over two decades. The second problem has been the soaring yen, which punished Japanese exporters.
The last five years have been especially difficult -- from the global recession and financial crisis to the earthquake and tsunami of 2010 -- and were compounded by an ever-rising yen that made Japanese exports less competitive in the global marketplace, WisdomTree Research Director Jeremy Schwartz said in a recent note.
Over those five years, the iShares MSCI Japan Index Fund (DXJ ). December marks the first month that DXJ's index will trade with a geographic filter to remove companies that derive the bulk of their revenue from Japan.
The index also now caps sector weights at 25%. Industrial names currently represent over 24% of DXJ's weight while discretionary, technology, health care and materials names also garner double-digit allocation.
As a way of trimming yen exposure, DXJ has proven even more profitable than YCS as the former has surged 4% in the past month. Investors are taking notice. DXJ had $516 million in assets under management as of mid-November. The ETF started trading today with nearly $648 million, according to WisdomTree data.
(c) 2012 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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