Election Day is less than five months away. So advisors and investors are attempting to position for various congressional and presidential outcomes. That’s logical, but’s also worth noting that U.S. elections can affect assets in other markets, including Japan.
Japan’s Topix Index hit an all-time high last week, its first since 1989. History indicates a particular outcome in the U.S. presidential election could further propel that benchmark and ETFs such as the WisdomTree Japan Hedged Equity ETF (DXJ ). Yes, he’s controversial and, no, he’s not everyone’s cup of tea. But former President Trump was a boon for Japanese stocks in his first year as president.
Obviously, there are no guarantees he’ll win a second term, and Japan stocks have performed quite well without him. Over the past three years, DXJ is higher by 107.8% as of July 3.
Could Trump Part II Boost DXJ?
In finance, history doesn’t always repeat, but it often rhymes. That’s worth remembering as it pertains to Japan stocks if Trump wins a second term.
“Japan’s Topix Index gained almost 30% in dollar terms in the one-year period after the 2016 US presidential election which Trump won, beating the S&P 500 and the MSCI World Index which each rose roughly 20%,” reported Bloomberg.
Overall, Japanese stocks performed well during Trump’s first term. And that’s even when accounting for a large decline in 2018 amid the U.S./China trade war. DXJ was solid during that period as well. That’s despite the 2018 headwinds and a flight to safety in 2020 that was caused by the COVID-19 pandemic bear market, which generated upside for the yen.
Some DXJ Holdings Could Benefit
This time around, market observers expect more bellicose rhetoric from Trump and potentially harsh policy aimed at Beijing. And that could compel global investors to seek alternatives to Chinese and domestic equities. With the yen already weak and Japanese stocks rallying, some DXJ holdings could benefit if Trump wins another term. Add to that, Japan has escaped the ravages of inflation and stocks there remain attractively valued relative to U.S. counterparts.
“After years of being bypassed for faster-growing markets, Japan’s stocks have sprung to life of late amid signs that the Asian economy has escaped deflation and is on a path to sustainable expansion,” according to Bloomberg.
Of note to investors considering DXJ, analysts at some Japanese research firms believe that if Trump wins a second term, shares of Japanese firms with larger revenue streams in the U.S. than in China stand to benefit. Some DXJ holdings fit that bill.
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