The Japanese stock market could be a smart place to invest for a number of different reasons. I'm going to talk about a particular ASX ETF that could give good exposure to Japanese stocks. Warren Buffett himself recently decided to invest in Japan stocks.
Why is the Japan stock market attractive?
There have been a number of changes made in Japan that could lead to better long-term returns.
For example, the Japanese financial regulator, called the Financial Services Agency, has been campaigning for companies to undo their cross-holdings, which is generally viewed as an inefficient use of capital.
The Tokyo Stock Exchange has been asking companies that are trading at a discount to the balance sheet values to announce plans about how they'll close that discount.
There are also signs that wage growth could start flowing through the economy,
Another benefit for Aussies is that the Japanese Yen is at close to the weakest exchange rate this century compared to the Australian dollar, so it's much cheaper for Aussies to buy stakes in Japanese companies at the moment.
Buffett's Berkshire Hathaway has invested billions in five Japanese companies that are somewhat similar to Berkshire Hathaway because of how diversified their earnings are across numerous sectors. Those businesses include Itochu Corp, Marubeni Corp, Mitsubishi Corp, Mitsui, and Sumitomo Corp.
How to invest in Japanese stocks with an ASX ETF
There are a few different ways to get exposure to Japanese stocks on the ASX, with exchange-traded funds (ETFs) playing a key role.
I think the iShares MSCI Japan ETF (ASX: IJP) could be a good way to do it because it's entirely invested in Japanese stocks, while ETFs focused on the entire global share market only have a portion of the portfolio invested in Japanese stocks.
The IJP ETF gives exposure to large and mid-sized companies in Japan, providing access to around 85% of the Japanese stock market. At the time of writing, there are a total of more than 220 positions in the portfolio.
Some of the biggest positions within the ASX ETF that I haven't already mentioned include Toyota, Sony, Hitachi, Honda Motor, Softbank, Nintendo, Daikin, Asahi and Fujitsu.
Looking at the industry allocation, there are four sectors with a weighting of more than 10%: industrials (23.15%), consumer discretionary (18.95%), IT (14.77%) and financials (13.36%).
Past performance is not a guarantee of future performance, but over the past decade, the IJP ETF has returned an average of 9.6% per annum, while the Vanguard Australian Shares Index ETF (ASX: VAS) has returned an average of 8.2% over the last 10 years.
I think it could be a very interesting time to invest in Japan stocks, via this ASX ETF.
