Japan has one of the biggest economies in the world, third only to the US and China. And, as home to leading global companies such as Honda, Sony and Uniqlo, if you’re thinking of expanding your investment portfolio internationally it makes sense to consider Japanese stocks. We’ve outlined the ins and outs of investing in Japanese stocks from the UK.
Yes, though it might not be quite as straightforward as trading in UK stocks. Many investment brokers have platforms that let you trade on popular overseas stock markets – such as the New York Stock Exchange or Nasdaq in the US, or Europe’s Euronext. But relatively few will give you access to Japanese stock markets such as the Tokyo Stock Exchange, so you may need to do a bit of research to find one. We list which stock markets are available via leading platforms in our guide to share dealing platforms.
You are also likely to find some major Japanese stocks are dual-listed on stock exchanges that are more widely accessible through UK investment brokers, including the London Stock Exchange (LSE) and the New York Stock Exchange (NYSE). These will include well-known Japanese companies such as Sony and Toyota. This should make it much more straightforward to buy such stocks.
Some brokers may also offer access to Japanese-focused exchange-traded funds (ETFs). Many ETFs track major stock market indices, such as the Nikkei 225, a widely-known Japanese index.
You don’t necessarily have to buy Japanese stocks directly in order to get exposure to the Japanese stock market. There are a couple of other options, depending on your investing experience and risk appetite.
Just as you’ll come across investment funds that focus on UK stocks (such as a fund that tracks the FTSE 100, a leading index on the London Stock Exchange), you’ll also find funds that specialise in international markets – including Japan. For example, there are ETFs that track the performance of leading Japanese indexes such as the Nikkei 225.
Investing in funds can be a good option for less experienced investors or those with less time to spend building a diverse portfolio from individual stocks. That’s because they are automatically more diverse – a single fund gives you exposure to multiple companies in one fell swoop. For this reason, funds are typically considered less risky than investing directly in stocks.
American Depository Receipts are certificates of purchase from a US bank, representing a specific number of shares in companies. This can include Japanese shares.
By purchasing one, you are effectively buying the shares they represent. They can be traded much like normal shares on the NYSE or Nasdaq, and are purchased and pay out dividends in US dollars. Many UK investment platforms offer access to the NYSE and Nasdaq, so it may be easier to buy ADRs than to buy shares directly.
This is a risky way of investing that carries a high chance of the investor losing money. It involves effectively “betting” on a company’s future performance, through spread betting or CFDs (contracts for difference). You can find out more in our full guide to CFDs vs spread betting.
As with any stock purchase, you may incur several types of fee to invest in Japanese stocks. The exact fees will vary by platform and not all will apply with every provider, so it’s worth researching your choices carefully. Fees you may encounter include:
If you’ve already signed up to an investment platform, it will likely have tools – including tables and graphs – that let you monitor the performance of the stocks available through its platform. Subject to the quality of the tools, this is likely to be the most straightforward way to find out which Japanese stocks have historically performed the best.
If you haven’t yet signed up to a platform or want to seek out high-performing Japanese stocks that aren’t available through your current broker, then you can try heading straight to the website of the Japan Exchange Group (parent company of the Tokyo Stock Exchange). You may need to spend a bit of time rummaging to find the information you want though. Alternatively, some investment data analysts may publish tables giving top-line details of the performance of stocks in leading Japanese stock market indexes.
Bear in mind, as always, that past performance is not necessarily an indicator of future performance. Plus, the highest returns often come from investments that carry the highest risk. So don’t be led purely by a stock’s current success when deciding which Japanese companies to buy a stake in.
The best way to understand how Japanese stocks perform is to take a look at the major exchange in Japan, the Tokyo Stock Exchange.
As you can’t directly invest in Japan, we have used the Tokyo TOPIX index fund which comprises of 2,000 stocks listed on the Tokyo Stock Exchange. This allows you to get a good idea on how well the stock exchange is performing over time.
There are a few things to consider before jumping feet first into the Japanese investment market. One, of course, is whether it’s the right market for you to diversify your portfolio with among the many global markets available. So do your research into your options and, if necessary, seek professional financial advice.
If you’re keen to go ahead, think about whether you’d be better off investing directly in individual company stocks, which requires more time, effort and potentially higher fees, or whether a fund that gives you exposure to multiple Japanese stocks in one go would be a better bet. If you do decide to go for stocks, think about the right balance to ensure a diverse portfolio and do your due diligence into the companies on your shortlist by looking into overall financial health and future prospects. Remember that just because a company is currently performing well, doesn’t mean it will continue to do so.
Another consideration is currency risk, which applies when investing in a foreign currency. Essentially, you risk losing money if the pound is weak against the currency you are buying stocks in. So take account of this when making your decisions.
Investing in Japanese stocks can be a great way to get access to major international car and tech firms and diversify your portfolio. Fewer UK investment platforms give direct access to the Tokyo Stock Exchange than do so for US or European exchanges, but you can also get exposure by buying dual-listed stocks or funds that focus on Japanese companies. If you’re keen to buy stocks, make sure you know about additional fees, such as for currency exchange, that you’ll have to pay as well as commission.
All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
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