Investors Eye Japanese ETFs as Country Tries to Recover

Henry Truc  |

The choppy trading and uncertainty of the economic market has cause put many investors on the sideline, waiting for an opportunity to pounce on. So when the 9.0 earthquake and ensuing tsunami struck Japan, a lot of the big money saw this as a chance to buy low on the world's third largest economy and the recovery effort soon to follow. Japanese exchange-traded funds saw an influx of $1.8 billion following the natural disaster, even as the rest of the global financial markets dropped. The data comes from investment research firm TrimTabs, which says it is the largest inflow of money on record.

TrimTabs monitored seven ETFs that hold Japanese equities, but one stood out heads and shoulders above the rest. Of the $1.8 billion in investments, $1.6 billion was used to buy iShares MSCI Japan Index Fund (EWJ). Other Japanese ETFs trading in the U.S. include:

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  • WisdomTree Japan SmallCap Dividend (DFJ)
  • SPDR Russell/Nomura PRIME Japan (JPP)
  • SPDR Russell/Nomura Small Cap Japan (JSC)
  • iShares S&P/TOPIX 150 Index (ITF)
  • iShares MSCI Japan Small Cap Index (SCJ)
  • Japan Smaller Capitalization Fund Inc. (JOF)

Oddly enough, TrimTabs analyst Minyi Chen tells the New York Times that the money is coming mostly from retail investors.

After the earthquake, investors waited for two trading days before acting. But on Wednesday, March 16, after stocks in Tokyo fell by about 10 percent, investors in the United States responded by moving heavily into E.T.F.’s.

One reason may be that Japanese stocks still have far to go in their recovery. Though the Nikkei 225 index in Tokyo has bounced back from recent lows, it is still down 9.43 percent since before the earthquake.

Minyi Chen, Asia equity analyst at TrimTabs, said that the latest purchases were driven by retail investors spotting a long-term buying opportunity, rather than by short-term traders.

“Buyers began to emerge almost immediately.” he said. “Extremely low valuations brought in bargain shoppers.”

Typically, institutional investors like pension funds, hedge funds and short-term traders make up about only 10 percent of the holders of the Japanese E.T.F.’s, he said. The inflows have continued this week — with another $371 million flowing in on Monday and Tuesday, he said.

However, in a separate Dow Jones article, Minyi says he believes that institutional investors could be behind the buying.

"The inflow is so overwhelmingly big, I don't think all of it is from long-term investors," Chen said. "Investors should prepare for the possibility of some profit-taking by short-term speculators once the nuclear crisis stabilizes."

Obviously, short-term investing in the Japanese recovery is just speculation at the moment, especially this late in the game. However, if investors are looking to hold this strategy for a longer horizon, they must be prepared to endure a few dips when the big money either takes their profits or cut their losses.

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