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Why You Should Consider Asian Equities

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Along with recent strength in both China and Japan––also big energy importers––this confirms our view that investors should consider the opportunities in Asian equities.

Consider Asian equities, as most major Asian economies are net importers of oil.

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Market Realist – Consider Asian equities, as most major Asian economies are net importers of oil.

The graph above shows the performance of the Nikkei 225 of Japan (EWJ) and the Shanghai Composite of China (FXI) since the start of last year. Both indexes have done well, with returns of 14.2% and 53.4%, respectively.

For both economies, as we discussed earlier, the dip in oil (USO) prices acts as a tax cut for consumers, supporting consumption. Unlike Russia (RSX), both China and Japan are net importers of oil, so the dip doesn’t hurt their economies.

Japanese stocks have also run up due to depreciation in the yen. Remember, Japan is an export-driven economy. A weaker yen makes Japanese exports look attractive. However, from the US perspective, you need to hedge your position in Japan, as a weaker yen will nullify your returns. You can hedge by investing in the iShares Currency Hedged MSCI Japan ETF (HEWJ).

Chinese stocks have galloped since the start of 2014, despite the slowdown in the economy. The strong returns are mainly because China has allowed foreign access to its A-shares listed on the Shanghai Composite Index. They’re also due to Chinese citizens borrowing with loose margin requirements, resulting in a buying spree.

Within Asia, Indonesia (IDX) offers a relative value play. It’s also a net importer of oil and a consumption-driven economy, like India (EPI), which gains from the dip in oil prices.

Read Market Realist’s Can depressed oil prices impact global growth? for more analysis of lower oil prices’ effect on global growth.

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