Reopenings are a key theme this year, but not all economic restarts are created equal. Yes, China’s reopening and unwinding of its “zero-COVID” rules will have a significant impact on global markets. But rampant COVID deaths, political risk, and a lagging real estate sector have ensured that Chinese markets are no sure thing. That said, Japan’s reopening could be worth a look instead in a Japanese equities ETF like the Franklin FTSE Japan Hedged ETF (FLJH B).
First off, investors shouldn’t underrate the importance of Japan’s own reopening. China’s gets more attention given how stringent its “zero-COVID” regime has been, but Japan’s reopening is starting to hit its stride. The archipelago nation is targeting a record number of inbound travelers in 2015 as part of an ambitious plan to reignite an industry that had aimed for 40 million tourists just before the pandemic.
At the same time, the Japanese government also unveiled a government stimulus plan late in 2022 that is set to support a broader rebound in wages that showed up more recently in economic data. While it is facing a recently more inflationary climate, at last one Japan expert believes that the inflation shows that the country is perhaps ending its affair with structural deflation.
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While a weaker yen had seemed set to benefit the country’s exporters, a stronger yen could in turn support domestic consumption. Taken together, the situation in Japan merits a look at a Japanese equities ETF with solid returns, like FLJH. Tracking the FTSE Japan RIC Capped Hedged to USD Net Tax Index, the strategy hedges out currency exposure, which could be a key advantage as the currency’s short-term future appears a bit up in the air.
FLJH charges nine basis points and has outperformed its ETF Database category average and FactSet segment average YTD, returning 6.5% compared to 5.4% and 4.6%, respectively. The strategy just hit its five-year anniversary in December, and with international equities looking appealing right now compared to overvalued U.S. equities, a Japanese equities fund could be an ETF to keep on the shortlist in the weeks and months to come.
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