BigTrends

The President of Toyota (TM) will be speaking before Congress today, and will surely take some "verbal lumps" from publicity-seeking politicians this week.  However, this may well mark the bottom TM shares, assuming the current mini-scandals are the last of the bad news in terms of major mechanical car problems.

This is a classic case of bad news taking a stock down, but the company being likely strong enough to survive and rebound.  It reminds a bit of the Audi problems in the 1980s, which of course were on a smaller scale -- but they blew over fairly quickly.  Toyota has built up a long-standing goodwill with customers around the world -- while this may have been mildly damaged, it can be regained by maintaining high quality standards and vigilance.

For all the talk of "Buy American", let's not forget that Toyota manufactures cars and trucks in states like Kentucky, Alabama, Texas, Indiana and West Virginia.  Many other foreign car makers also build a great many vehicles and parts in the USA, providing good jobs for Americans.  And these states are grateful for this employment ... as are their politicians.

While there certainly is risk in TM shares due to the overall market, the world economy, as well as the Auto Industry itself, I maintain that the "bad news" drop in the shares is just about over starting with today.

TM Daily Chart

We previously examined the performance of various country-specific ETFs in 2010 and Japan (EWJ) and Russia (RSX) were standouts.  This trend has shown no sign of abating, and may well continue throughout 2010.  In particular Japan, which has been a "dead money" market for about 20 years now, may be poised for relative outperformance gains in 2010 vis-a-vis some other major country ETFs.

The other international ETFs profiled in the chart include India (PIN) in purple, Canada (EWC) in white, Australia (EWA) in blue, China (FXI) in green,  Germany (EWG) in orange, and Brazil (EWZ) in yellow.  Brazil is the laggard of these countries thus far this calendar year.

If you don't buy my assertion that Japan may outperform this year and prefer to bank on a rebound by the current bottom performer Brazil, then one could attempt to "fade" the current trend by going long EWZ (through stock or options) and shorting EWJ for roughly the same amount.  That would be considered a "paired" or hedged trade.

Examining the Top 10 holdings of the iShares MSCI Japan Index (EWJ), it looks to be a pretty well-diversified ETF.  Only 1 of the Top 10 holdings is over 3% of its assets, that being Toyota at 5.4% as of the latest reporting.  Certainly the recent troubles of Toyota USA should be taken into account when trading or investing in the EWJ.



ETF Relative Performance Chart