Investor capital is circulating globally, with Japan and emerging markets ETFs gaining traction as trade policy uncertainty makes a comeback.About $1 billion was injected into the iShares MSCI Japan ETF (NYSE:EWJ) last week, while the Vanguard FTSE Emerging Markets ETF (NYSE:VWO) attracted around $949 million. These two separate inflows indicate that investors are diversifying their portfolios beyond U.S. stocks during a period when tariff agreements related to President Donald Trump's policy agenda are aga ...

Core Insights - Japanese stocks and the iShares MSCI Japan ETF are expected to continue their strong performance into 2026, supported by the "Takaichi Trade" and a favorable political environment [1][2] Investment Opportunities - The iShares MSCI Japan ETF, with a market capitalization of $18.3 billion, is one of the oldest and most accessible single-country ETFs, tracking the MSCI Japan index [4] - The ETF has shown a positive price change of 0.51%, currently priced at $93.85, with a 52-week range of $57.68 to $94.28 [8][9] Political Environment - Prime Minister Sanae Takaichi's popularity and decisive policies are viewed positively by both voters and investors, contributing to a favorable investment climate in Japan [6][7] - Takaichi's proposed massive stimulus aimed at supporting technology and driving inflation is seen as a strategic move to enhance wage growth and domestic tech investment [9] Shareholder Returns - The MSCI Japan index has seen a significant increase in dividend payout expectations, rising by 38% over the past five years, indicating a shift towards better shareholder rewards [11] - The iShares ETF boasts a trailing-12-month dividend yield of 4.22%, reflecting the improving return on equity (ROE) of Japanese companies [10][11] - Share buybacks by MSCI Japan index member firms have accelerated over the past two years, further enhancing the attractiveness of the ETF [12]

Core Viewpoint - Japan's stock market has reached all-time highs in 2026 due to significant regulatory changes and improvements in corporate governance [1][3]. Group 1: Market Performance - The Nikkei 225 index achieved a new all-time high in January 2026, recovering from the "lost decades" post-1989 crash [2]. - Over the past five years, the TOPIX index has increased by 93.3%, while the Nikkei 225 index has risen by 84.3%, both outperforming the S&P 500 index, which is up 79.2% [2]. Group 2: Corporate Governance Changes - Recent reforms in Japan's corporate governance have been pivotal in driving stock market performance [4][7]. - The traditional keiretsu system, characterized by interlinked partnerships and cross shareholdings, has been criticized for inefficiency and lack of competition [5][6]. - The Financial Supervision Agency (FSA) and the Tokyo Stock Exchange have implemented reforms to discourage cross shareholdings, leading to a trend of companies selling off these holdings since fiscal year 2020 [7]. Group 3: Investment Opportunities - The new corporate governance reforms are fostering a more competitive and dynamic economy in Japan, encouraging companies to focus on shareholder value [8]. - American investors can consider the iShares MSCI Japan ETF (EWJ) as a means to invest in Japan, which has outperformed the S&P 500 index with a 25.9% increase compared to the S&P 500's 13.7% [9]. - The iShares MSCI Japan ETF includes 181 holdings in top Japanese companies, such as Toyota, Sony, Hitachi, and major financial firms, with an expense ratio of 0.49% [10].

Core Insights - Early 2026 is characterized as a stock-picker's market, with investors favoring countries experiencing peak inflation, improved policy clarity, or strengthening growth drivers Group 1: Market Performance - The MSCI World Index has increased by 2.4% year-to-date, following a nearly 19% rise in 2025 [1] - The iShares MSCI ACWI ex US ETF is up 5.2% year-to-date, while the SPDR S&P 500 ETF Trust has only gained 1.6% [1] - Emerging markets have shown significant strength, with the iShares MSCI Emerging Markets ETF rising over 6.5% year-to-date [1] Group 2: Country-Specific ETF Performance - iShares MSCI Norway ETF is at $31.20, close to its 52-week high of $32.76 [2] - Global X MSCI Norway ETF is at $32.42, near its 52-week high of $32.59 [2] - iShares MSCI Turkey ETF is at $39.54, just below its 52-week high of $39.95 [2] - iShares MSCI South Korea ETF is at $121.57, close to its 52-week high of $121.85 [2] - iShares MSCI Japan ETF is at $85.53, near its 52-week high of $85.99 [2] Group 3: Market Drivers - The Norwegian stock market benefits from stable monetary policies, with Norges Bank maintaining a policy rate of 4% [3] - Turkey's stock market shows positive momentum as inflation decelerates to 30.89% in December 2025, the lowest since November 2021, boosting market confidence [4] - South Korea's market rally is driven by a strong semiconductor sector, with the KOSPI surpassing 5,000 points due to increased AI chip sales and strong export figures [5] - Japanese stocks are rising due to political and macroeconomic factors, including a snap election and plans for bold fiscal policies [6] - The Bank of Japan has upgraded its growth forecast to 0.9% for the fiscal year ending March 2026, up from 0.7%, and increased its fiscal 2026 growth forecast to 1% [7]

Core Viewpoint - The case for international diversification has strengthened in 2025 as several non-U.S. stock markets significantly outperformed the S&P 500, suggesting potential opportunities for U.S. investors seeking diversification and lower price-to-earnings multiples [2][4]. Group 1: International ETFs Performance - The iShares MSCI South Korea ETF has gained nearly 8% in early 2026, adding to its impressive 104% increase over the past year, driven by major companies like Samsung and SK Hynix [5][9]. - The South Korean ETF is heavily influenced by Samsung, which has risen 157%, and SK Hynix, which has surged 286%, together making up over 45% of the ETF [6][9]. - The ETF's price-to-earnings (P/E) ratio is relatively low at 19.1 times, indicating potential value despite its strong momentum [8][9]. Group 2: Other International ETFs - The iShares MSCI Japan ETF has also performed well, rising 31% and trading at a P/E of 18.9 times, suggesting it may be another option for investors looking for international exposure [9]. Group 3: Market Outlook - Goldman Sachs Research anticipates a potential 11% gain for global stocks in the upcoming year, indicating a positive outlook for international markets [4].

Core Viewpoint - The WisdomTree Japan Hedged Equity Fund (DXJ) effectively mitigates currency risk for U.S. investors, allowing them to benefit from Japanese equity returns without the adverse effects of yen fluctuations, achieving a 34% return in 2024 compared to 16% for the S&P 500 [1][3]. Group 1: Fund Performance - DXJ returned 34% in 2024, outperforming the S&P 500's 16% return [3]. - The fund's currency hedging contributed over 7 percentage points of outperformance compared to unhedged Japanese equities in 2024 [4]. - The unhedged alternative, iShares MSCI Japan ETF (EWJ), returned 27% during the same period, highlighting the impact of currency movements on returns [4]. Group 2: Fund Composition and Strategy - DXJ holds 430 Japanese companies that pay dividends and derive at least 20% of their revenue from outside Japan, including major exporters like Toyota, Mitsubishi UFJ Financial, and Sumitomo Mitsui Financial [2]. - The fund employs forward currency contracts to neutralize yen-dollar fluctuations, enabling investors to capture Japanese equity returns without currency headwinds [2]. Group 3: Income and Expenses - DXJ offers a yield of 3.1%, providing modest income alongside potential capital appreciation, although dividend distributions can be volatile due to underlying equity dividends and hedging gains or losses [5]. - The fund charges a 0.48% expense ratio, which is reasonable for an actively hedged strategy but higher than that of broad market index funds [6]. - With $4.8 billion in assets, DXJ provides sufficient liquidity and trades at approximately 16 times earnings, which is attractive compared to U.S. large caps [6]. Group 4: Risks and Trade-offs - Currency hedging can be a double-edged sword; when the yen strengthens, unhedged investors benefit from favorable currency translation, while DXJ holders miss out, leading to potential underperformance of DXJ compared to EWJ [7]. - Investors are essentially betting that the yen will remain weak or that Japanese equities will rise sufficiently to offset any currency-related losses [7].

Group 1 - The article provides a market analysis covering major indices such as S&P 500 and Nikkei 225, as well as the US Dollar Index Futures and iShares MSCI Japan ETF [1] Group 2 - The analysis includes insights on the performance trends of the S&P 500 and Nikkei 225, indicating their respective movements in the current market environment [1] - The US Dollar Index Futures are discussed in terms of their fluctuations and impact on global markets [1] - The iShares MSCI Japan ETF is evaluated for its performance relative to the Japanese market and investor sentiment [1]

Core Insights - The article discusses the investment opportunities in Japan, particularly through the iShares MSCI Japan ETF (EWJ), following a trade deal between the U.S. and Japan that reduces tariffs on Japanese auto imports from 27.5% to 15% and includes a $550 billion investment package from Japan [12]. Group 1: Investment Opportunities - The trade deal is expected to boost investor sentiment towards Japan, with EWJ showing a breakout above previous resistance levels [12]. - Japan's corporate governance improvements, strategic trade agreements, and undervalued equities present a favorable investment landscape [12]. - The weak yen and the Bank of Japan's reluctance to raise interest rates further enhance the attractiveness of Japanese equities [12]. Group 2: Market Dynamics - Money flows in major tech stocks like Apple, Amazon, and NVIDIA are positive, while flows in Google and Tesla are negative, indicating mixed investor sentiment in the tech sector [5][7]. - The article highlights the importance of monitoring money flows in ETFs like SPY and QQQ for investment strategies [8]. Group 3: Political Landscape - Increased political instability in Japan is noted, with the Liberal Democratic Party losing its majority in the upper house and lower house elections, which could impact future economic policies [12]. Group 4: Earnings Reports - Upcoming earnings reports from major companies such as Alphabet, Tesla, and IBM are highlighted, which could influence market movements [12].