China & Japan ETFs Among Leading Gainers On The ASX

China and Japanese stocks are providing opportunities for Exchange Traded Fund investors as we look at two single-country ASX-traded ETFs that have led the way.

While not an easy option for some investors, single-country ETFs have their place as they remove challenges such as selecting stocks in unfamiliar markets.

China’s stock market is showing signs of a revival after a rough patch, and investors are increasingly confident that the rebound is here to stay.

The Hang Seng China Enterprises Index, which tracks the performance of major Chinese companies listed in Hong Kong, is the world’s best-performing primary market index this month, a remarkable turnaround from last year when it was among the worst performers globally.

Despite some lingering economic uncertainty, China remains an attractive investment destination for many Australians, especially considering the country’s government has yet to unleash its full arsenal of stimulus measures to boost the economy.

This potential policy shift could provide a significant tailwind for China’s economy in the coming months.

China ETF Gainer

In Australia, the VanEck FTSE China A50 ETF (ASX: CETF) gained 2.8% for the week, benefiting from the strong performance of the 50 largest companies in mainland China. CETF tracks the FTSE China A50 Index, providing investors with exposure to China’s A-shares market.

China, the world’s second-largest economy, offers a compelling opportunity for ETF investors seeking exposure to sectors like technology, consumer staples, and renewable energy, which have been key drivers of the country’s growth in recent years.

Japan

Japan’s stock market has also been on a tear, with the Nikkei 225 Index surging about 14% year-to-date, following a stellar 39% gain in 2023.

Notably, currency-hedged Japan ETFs, which shield investors from fluctuations in the Japanese yen, have delivered even higher returns.

The recent rally has been fueled by rising inflation and interest rates. Japan’s core consumer price inflation jumped 3.1% last year, marking its highest level since 1982.

This surge was primarily driven by rising food costs and a weaker yen, which made imports more expensive.

With signs of deflation fading, there are growing expectations of rising corporate earnings as companies pass on higher input costs to consumers.

Additionally, potential factors like rising real estate values and expanding profit margins are adding to the optimism.

The robust corporate earnings reported by major Japanese companies have been a key driver of the market’s resurgence. Sectors like banking, electronics, and consumer staples have delivered particularly strong financial performances, boosting investor confidence.

Furthermore, the Japanese government is actively working to make the country’s equity market more attractive to foreign investors. Regulatory reforms aimed at streamlining procedures, reducing bureaucracy, and enhancing transparency are fostering confidence among international investors.

Japan ETF Gainer

The Betashares Japan (Currency Hedged) ETF (ASX: HJPN)¹ has surged 16.1% year-to-date, outperforming the broader market. HJPN’s portfolio is concentrated on the largest Japanese companies that generate a significant portion of their revenue from outside Japan, offering diversification benefits for investors.

HJPN tracks the S&P Japan Exporters Currency Hedged AUD Index.

Additionally, the fund’s currency-hedged structure mitigates the impact of foreign exchange fluctuations on portfolio performance.

Among HJPN’s top holdings are Toyota Motor Corp (9.9%), Mitsubishi UFJ Financial Group (4.3%), and Tokyo Electron (3.8%). These industry leaders provide investors with exposure to well-established and globally recognized Japanese companies.

Both ETFs are passively managed, tracking their respective indices.

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¹Courtesy of Global X

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