Tag Archives: japanese

What Lies Ahead For Dollar ETFs?

Although the Fed rate hike hearsay continues to dominate the headlines, investors haven’t really seen this speculation shift to huge gains for the U.S. dollar, at least not in the recent time frame. In fact, the greenback – as represented by the U.S. dollar Index – has lost its value in the last one month and five-day period (as of September 15, 2015). One of the reasons for this unexpected move was an extremely dour trading scene throughout August and the start of September. Maddening economic issues in China – a currency devaluation and a six-and-half-year low manufacturing data for August – took the global market in its grip, and crushed the global equities in the last one month. Yet the U.S. dollar has held firm in 2015 (so far), as many investors remain long-term bulls on the world’s reserve currency due to a recovering American economy. This was truer as the most developed and emerging nations are dragging their feet currently, leaving the U.S. as the lone star. The U.S. economy underwent an upward GDP revision for the second quarter of 2015, from 2.3% reported earlier to 3.7% upgraded later on strong domestic demand. If this was not enough, the unemployment rate dropped to 5.1% in August, the lowest since April 2008. This more-than-seven-year low unemployment rate should bolster the case for an imminent policy tightening. Additionally, average hourly wages rose 0.3% sequentially and 2.2% year over year. The average work week also nudged up to 34.6 from 34.5 in the prior and the year-earlier months. All these made September lift-off a heightened possibility that should have bolstered the greenback, but kept it range-bound due to global market rout. Can Greenback Gain Post Fed? Things are at a critical juncture at this moment. Two ETFs offering exposure to U.S. dollar (USD) against a basket of world currencies – PowerShares DB US Dollar Bullish Fund (NYSEARCA: UUP ) and WisdomTree Bloomberg U.S. Dollar Bullish Fund (NYSEARCA: USDU ) – are up 4.1% and 5.8% so far this year (as of September 15, 2015) but retreated about 1.3% and 0.2% in the last one month, respectively. While many may view the recent dip in the greenback as a setback, we believe that this fall led the U.S. dollar and the related ETFs toward the fair valuation. These dollar-related products surged from the latter part of last year due to the diverging monetary policies between the U.S. and other developed and some emerging markets. The U.S. wrapped up its QE measure late last year while Japan boosted its gigantic asset-buying program and the Euro zone initiated a QE launch in early 2015. This policy differential made the U.S. dollar a king among its peer currencies while other developed currencies started to lose out on economic stimuli. As a result, the U.S. dollar index surged over 13% in the last one year (as of September 14, 2015). Thus, a certain pull-back will now help the U.S. dollar to better prepare for a rally if the Fed hikes rates this week). And even if the Fed opts for a December lift-off or sometime in early 2016, the U.S. dollar should prevail in the coming days as inflows of ultra-cheap money in Europe, Japan and some emerging economies will continue to weaken their respective currencies against the greenback, which is still stronger. Which ETF is a Better Bet? Given this, investors could definitely play the U.S. dollar by considering either UUP or USDU. UUP looks to track the U.S. dollar against a basket of six world currencies – the euro (57.6%), Japanese yen (13.6%), British pound (11.9%), Canadian dollar (9.10%), Swedish krona (4.20%) and Swiss franc (3.60%). USDU tracks the U.S. dollar against a basket of 10 developed and emerging market currencies. It allocates higher to the Euro zone currency at 32.5%, closely followed by Japanese yen (19.25%) and Canadian dollar (11.21%). Other currencies like Mexican peso, British pound, Australian dollar, Swiss franc, South Korean won, Chinese yuan and Brazilian real receive single-digit allocation each in the fund’s basket. Since, UUP is mostly exposed to the developed economies’ currencies; things are less likely to improve post Fed tightening. On the other hand, USDU gives exposure to a broader basket consisting developed and emerging currencies. Notably, most of the emerging market currencies are tumbling presently and are expected to fall out of favor post-Fed tightening. This should give USDU a scope for outperformance over UUP. Bottom Line Having said this, we would like to note that any resumption in the greenback rally should not be as great as it was late last year. This is because the market has mostly priced in the favorable outcome of the impending Fed lift-off and protracted easing in other developed nations like the Euro zone and Japan and their effects on the exchange rate. Original Post

Where In The World To Look For Opportunities

While Russ believes the outlook for U.S. stocks may be muted, he sees opportunities in other parts of the world, particularly in Asia. Kisan / Shutterstock After weeks of struggling, global stocks stabilized last week. However, market volatility remains elevated. Looking at realized returns over the past month accessible via Bloomberg data, annualized volatility on the S&P 500 Index is above 30 percent, triple its early August level. Looking forward, the bumpy ride in the U.S. is likely to continue , given the persistence of several factors, including a pending interest rate hike by the Federal Reserve (Fed) and expensive U.S. stock valuations. Without the tailwind of easier money, U.S. equities will need to get by on earnings growth, of which there hasn’t been much lately, rather than monetary policy-induced multiple expansion. But while the outlook for U.S. stocks may be muted, I do see potential opportunities in other parts of the world, as I write in my new weekly commentary, “ More Volatility on U.S. Horizon Has Sights Turning to Asia .” In particular, Asian stocks, both in Japan and in emerging markets (EMs), look attractive right now relative to other regions. Two Potential Opportunities in Asia Japan Last week, Japanese stocks, as measured by the Nikkei 225 stock index, enjoyed their biggest one-day advance since 2008 . Investors were encouraged by Prime Minister Abe’s pledge to further lower the corporate tax rate. Although implementation of the so-called “third arrow” of Abe’s reforms has been mixed, Japanese corporate profitability continues to improve. The return-on-equity ( ROE ) for Toyko Stock Price Index (MUTF: TOPIX ) stocks was 8.6 percent in August, up roughly a half point from a year ago, as data accessible via Bloomberg shows. As such, investors may want to consider Japanese equities . Emerging Asia I also see potential opportunities in Asia’s emerging markets, despite my more cautious stance toward the broader emerging market asset class . Many Asian emerging markets, including the Chinese market listed in Hong Kong, have sold off in concert with China, leaving their valuations once again cheap. In addition, with most countries in emerging Asia running a current account surplus and possessing sizable foreign currency reserves , I believe emerging Asia could be better positioned to withstand a Fed tightening cycle than other emerging markets. This dynamic has been evident in the relative resilience of emerging market currencies, an important determinant of overall return for dollar-based investors. With a few notable exceptions, namely currencies in Malaysia and Indonesia, the currencies in most Asian emerging markets are holding up relatively well against the dollar, as Bloomberg data show. Even in China, despite all the hand wringing over the recent devaluation, the yuan is down less than 3 percent against the dollar this year, according to Bloomberg data. In contrast, as the data show, currencies in Russia, Columbia, Turkey and Brazil have plunged this year. Finally, many investors assume that commodities and emerging markets go hand-in-hand . In fact, most of the countries in Asia, including China and India, are large commodity importers. They benefit when commodity prices decline. This is in contrast to the situation in places like Brazil, a large exporter of raw materials. Last week Standard & Poor’s downgraded Brazil’s sovereign rating back to junk status. Admittedly, other factors—notably a major political scandal and deteriorating fiscal picture— also played a part . The bottom line: For all of the reasons mentioned above, I see pockets of value in Asia, both in Japan and in the region’s emerging markets. This post originally appeared on the BlackRock Blog

China Stimulus Raises Hopes: Japan ETFs To Lead

Battered by the China-led global rout, Japanese stocks made a spectacular comeback in today’s trading session. The Nikkei 225 Stock Average skyrocketed nearly 8%, representing the biggest one-day jump in seven years. Steep gains came after a day when the index crashed 2.4%, wiping out all of the gains made this year. Optimism was mainly driven by stimulus hopes in China that could reinvigorate growth in the world’s second-largest economy. China will strengthen its fiscal policy, boost infrastructure spending and speed up the reform of its tax system to support the economy. Though this sparked off a rally in stocks across the globe, the Japanese stocks are leading the way higher. This is because prime minister Shinzo Abe provided an additional boost to the Japanese stock market, as it is seeking new reforms including a corporate tax cut to shore up the country’s economy. Abe is looking for a tax cut of at least 3.3% to 31.33% next year, starting April 2016, from the current 34.62% and aims to bring it down to the twenties over the next several years. Further, the steep drop in recent weeks made the Japanese stocks cheap, compelling investors to scoop up the bargain stocks. As of September 8, Nikkei 225 was trading at 16.4 times estimates earnings , the lowest level since October. Given an astounding surge in stocks, Japan ETFs are also expected to see smooth trading and investors should definitely tap this opportunity by investing in the top-ranked ETFs. While there are a number of funds with a Zacks Rank #1 (Strong Buy) or #2 (Buy), some are deep in red and thus offer attractive buying opportunities at present. In particular, the large cap centric funds – SPDR Russell/Nomura PRIMETM Japan ETF (NYSEARCA: JPP ), SPDR MSCI Japan Quality Mix ETF (NYSEARCA: QJPN ), Maxis Nikkei 225 Index Fund (NYSEARCA: NKY ) and iShares MSCI Japan ETF (NYSEARCA: EWJ ) – lost in double digits over the past one month. QJPN and JPMV have a Zacks Rank #1 while NKY and EWJ hold a Zacks Rank #2. Apart from these, Japan hedged funds – iShares Currency Hedged MSCI Japan ETF (NYSEARCA: HEWJ ), db X-trackers MSCI Japan Hedged Equity (NYSEARCA: DBJP ) and WisdomTree Japan Hedged Equity Fund (NYSEARCA: DXJ ) – also seem excellent picks. These ETFs offer exposure to the broad Japanese stock market, while at the same time provide hedge against any fall in the Japanese yen. The trio has a Zacks Rank #1 and is down nearly 14% over the past one month. Original article .