Investing in Toyota & Other Japanese ADRs
Japan's is home to the world's third largest economy by nominal gross domestic product ("GDP"). With approximately $788 billion in exports in 2011, Japan is well known among international investors for its large automotive and electronics industries. Recently, economic policies enacted in 2013 have led to greater confidence in an economic recovery.
International investors looking to gain exposure to Japan's economy have many different options, including exchange-traded funds ("ETFs") and American Depository Receipts ("ADRs").
While the iShares MSCI Japan Index ETF (NYSE: EWJ) represents the easiest way to build exposure, ADRs enable investors to build more specific exposure to industries or sectors.
Japanese ADRs are U.S.-traded securities that represent a specified number of shares in a Japanese corporation. They are issued and sponsored by a U.S. bank or brokerage firm that purchases a bulk lot of shares from the Japanese company, bundles them into groups, and reissues them on U.S. stock exchanges, like the NYSE, NASDAQ or AMEX.
Toyota Motor Corporation is Japan's largest company with a market capitalization of $189 billion, as of June 12, 2013. Founded in 1937 by Kiichiro Toyoda as a spin-off from his father's company, the company has grown into the third largest automotive manufacturer in the world behind General Motors and Volkswagen Group with over 200 million vehicles produced.
In fiscal year 2013, the company generated revenues of 22.064 trillion yen and net income of 962.1 billion yen, with total equity of 12.773 trillion yen.
The company's factories around the world produce not only its flagship Toyota brand, but also luxury brands like Lexus and the Scion brand designed to target the North American market and Generation Y consumers.
Investors can purchase Toyota's ADR on the New York Stock Exchange under the ticker symbol "TM", while it also trades on the Tokyo Stock Exchange under the ticker "7203" and on the London Stock Exchange under the ticker "TYT".
Japan houses a number of other important public companies with ADRs that international investors may want to consider for their portfolio. In fact, the country reported just under 90 of the Fortune 500 companies within its ranks. These companies include household names like Sony, Hitachi, and Nissan, as well as lesser-known names like JX Holdings and others.
In general, Japanese companies and ADRs focused on exports are characterized by the automotive industry (13.6% of exports) and semiconductor industry (6.2% of exports). Those focused on domestic goods include energy companies, telecom companies, and service sector companies, which may be poised to grow amid higher levels of consumer spending.
Some of the most popular Japanese ADRs include:
Owning ADRs carries the same risk as traditional stocks, plus additional political risks, exchange rate risks, and inflationary risks. For example, in 2013, incoming Prime Minister Shinzo Abe instituted an inflationary policy that led to a dramatic reduction in Japanese yen's exchange rate with other currencies, and subsequently affected many Japanese ADRs.
Certain tax consequences may also apply to Japanese ADRs, especially when it comes to claiming and paying taxes on dividend income. While most ADRs are treated like domestic securities by the U.S. Internal Revenue Service ("IRS"), investors should always consult their accountant or financial advisor before making investment decisions.
International investors looking to gain exposure to Japan's economy have many different options, including exchange-traded funds ("ETFs") and American Depository Receipts ("ADRs").
While the iShares MSCI Japan Index ETF (NYSE: EWJ) represents the easiest way to build exposure, ADRs enable investors to build more specific exposure to industries or sectors.
Japanese ADRs are U.S.-traded securities that represent a specified number of shares in a Japanese corporation. They are issued and sponsored by a U.S. bank or brokerage firm that purchases a bulk lot of shares from the Japanese company, bundles them into groups, and reissues them on U.S. stock exchanges, like the NYSE, NASDAQ or AMEX.
Toyota Motors: Japan's Largest ADR
Toyota Motor Corporation is Japan's largest company with a market capitalization of $189 billion, as of June 12, 2013. Founded in 1937 by Kiichiro Toyoda as a spin-off from his father's company, the company has grown into the third largest automotive manufacturer in the world behind General Motors and Volkswagen Group with over 200 million vehicles produced.
In fiscal year 2013, the company generated revenues of 22.064 trillion yen and net income of 962.1 billion yen, with total equity of 12.773 trillion yen.
The company's factories around the world produce not only its flagship Toyota brand, but also luxury brands like Lexus and the Scion brand designed to target the North American market and Generation Y consumers.
Investors can purchase Toyota's ADR on the New York Stock Exchange under the ticker symbol "TM", while it also trades on the Tokyo Stock Exchange under the ticker "7203" and on the London Stock Exchange under the ticker "TYT".
Investing in Other Japanese ADRs
Japan houses a number of other important public companies with ADRs that international investors may want to consider for their portfolio. In fact, the country reported just under 90 of the Fortune 500 companies within its ranks. These companies include household names like Sony, Hitachi, and Nissan, as well as lesser-known names like JX Holdings and others.
In general, Japanese companies and ADRs focused on exports are characterized by the automotive industry (13.6% of exports) and semiconductor industry (6.2% of exports). Those focused on domestic goods include energy companies, telecom companies, and service sector companies, which may be poised to grow amid higher levels of consumer spending.
Some of the most popular Japanese ADRs include:
- JX Holdings Inc. (OTC Markets: JXHGF)
- Nippon Telegraph & Telephone Corp. (NYSE: NTT)
- Nissan Motor Co., Ltd. (OTC Markets: NSANY)
Risks & Other Considerations
Owning ADRs carries the same risk as traditional stocks, plus additional political risks, exchange rate risks, and inflationary risks. For example, in 2013, incoming Prime Minister Shinzo Abe instituted an inflationary policy that led to a dramatic reduction in Japanese yen's exchange rate with other currencies, and subsequently affected many Japanese ADRs.
Certain tax consequences may also apply to Japanese ADRs, especially when it comes to claiming and paying taxes on dividend income. While most ADRs are treated like domestic securities by the U.S. Internal Revenue Service ("IRS"), investors should always consult their accountant or financial advisor before making investment decisions.
