| Time
to buy Japan? Maybe…
 Is
it time to finally write-off Japan? Or is it time to buy?
The Nikkei has spent over a decade
and a half moving down from a level of nearly 40,000 to a low in April
2003 of 7600, arguably one of the most blistering bear markets ever. Currently
the 225 index in the land of the rising sun is flirting with 10,000. I
smell a guarded opportunity. So for cheap and liquid exposure, let’s have
a look at yet another Exchange Traded Fund (ETF), the MSCI Japan ETF (AMEX:
EWJ), one of several
of the Amex-issued genus iShares.
 iShares
are ETF’s based on Morgan Stanley Capital International’s (MSCI) country
indices—the Japan offering closely following its proprietary Japan Index.
There are several individual ETF’s based on just about every country out
there, and each is constructed—but not guaranteed—to mirror the overall
activity of an international target market. Since most of us couldn’t name
5 Japanese, or Belgian, or even Canadian, stocks, the vehicles provide
a liquid, easily traded way to internationalize a portfolio.
 Beginning
of the end, or…
Over the past five years, the EWJ
has flirted with $17 twice: once in 1996 and once in 2000. The low of $6.19
set on April 28th, 2003 seems a relatively strong support level, and the
EWJ currently trades at around $7.75. One has to think that a bear market
lasting almost 15 years and nuking 80 percent of a market’s value should
have a relatively decent bounce—if not a reversal-- in it. The EWJ holds
mostly large cap Japanese stocks and, as with most ETF’s, has an extremely
low expense ratio (.84 percent). Net assets are over $1.5 billion. It is
also one of the most actively traded of all the ETF’s. Costs are restricted
to the commission, as with the purchase and sale of any individual share.
For volume watchers, the daily shares traded have increased exponentially
since the beginning of 2003.
There have been other rally attempts
over the years, but this one looks different—especially with the large
trading volume increases. Japan may actually be getting its act together
as the country’s rates rise for the first time in what seems like an eternity;
industry and the economy may indeed be recovering.
 It’s
not a matter of whether Japan’s economy will reform, but when and under
what plan? Something has to work. We may be at that point now. The past
rallies seemed more technical in nature. This time, the rise appears much
more robust. If one looks at a long- term chart, the 1998 to 2000 rally
moved the Nikkei up 60 percent. The Japan iShare moved from $8 to $16—a
100 percent gain.
Technically, EWJ has been in a nice
steady uptrend since late April 2003. The stock broke out on a huge run
up earlier this month and has since pulled back nicely to its current trend-line.
Could well be a good time to take a position.
Inky dinky SPDR…
The main difference between SPDR’s
(spiders, covered in our last piece) and iShares is simply S&P 500
stocks versus countries--Although there are bond iShares. As the
driving force in ETF’s, the AMEX has developed a bevy of securities that
are reflective of their underlying benchmarks, cheap to trade and, above
all, liquid. With spreads—for the most part—of a penny, one wonders why
anyone would trade industry or country specific Mutual funds, with their
high costs, fees and, in some cases, questionable ‘active’ management.
Then, of course, there’s the exemption
ETF’s enjoy from the uptick rule that can frustrate short sellers in a
volatile market. Most fund managers can’t short stocks and rarely beat
their benchmarks.
 With
markets looking perkier, a selection of ETF’s may suit those investors—dare
I say, especially small cappers—who want diverse equity exposure but lack
the time or interest to select domestic or international individual big
caps.
Have a look at the EWJ or the iShare
trading against the country of your choice. It’s a big --and potentially
profitable --world out there.
Got questions or comments? Send 'em
here: editor@smallcapdigest.net
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