In Japan, Hope Springs Eternal

While most investors have long given up hope on Japan, some diehards cling to hope.

Paul unabashedly has stuck by Japan (see his blog here) even as he’s put the other two-thirds of his portfolio in silver and gold. That, my friends, is quite a combination for a portfolio, and one I’d never entertain. As much of a gold nut as I am (and I have long held gold as a hedge for just this sort of jet-fueled-end-of-the-world gold run), I would never put even one-third of my portfolio, let along two-thirds, into Precious Metals.

But gold has done well for those who have held on to it recently, that’s for sure … a good sight better than, say, my large bet on U.S. Financials in November of 2007.

But regarding Japan, I have to say: Just because something is “dirt cheap” doesn’t necessarily make it a good buy.

I’ve long since given up on the Japanese miracle story. While I think there is hope for a sensational rebound there at some point, I absolutely think there’s much more upside in other markets in the region. Some of the Asian funds I find appealing are:

  • ETFs tracking the FTSE/Xinhua China 25 Index, which are offered by iShares, db x-trackers and EasyETF, and are available on all the major exchanges in Europe. They capture some of the biggest companies operating in the China space.
  • If you want to get more diversified within China, you could look at the Lyxor ETF China Enterprise ETF or the iShares DJ China Offshore 50. Whichever you choose, you’re getting large-cap exposure to what I see as one of the most vibrant and best-positioned economies in the world.
  • I also like the Market Access DAXglobal Asia ETF, which holds a diversified portfolio of companies from 10 of the most vibrant Asian economies, led by China (29% of the fund), South Korea (20%), India (19%) and Indonesia (8%). In a similar vein, both the Lyxor and EasyETF ex-Japan ETFs grab my attention, as they include exposure to many of these dynamic markets.
  • An alternate approach would be to buy a dividend-screened ETF, like the iShares DJ Asia/Pacific Select Dividend Fund. The dividend focus would provide some comfort that the companies in the fund are financially secure.

What I wish were available in Europe, and which is available in the United States, is a fund that provides exposure to the Chinese yuan currency. In the U.S., WisdomTree Investments puts out a yuan fund (NYSEArca: CYB) that strikes me as a very attractive fund in the current climate. Come on, European ETF developers! Get a move on.

To me, any of those choices seem more appealing than Japan. Those are about the future of Asia, the more vibrant corners of the market that have better prospects when and if the global economy rebounds.

Right now, when your heart is weak and your strength is waning, is when fortunes are made. Right? Right? Anyone?

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