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Monday, February 11th, 2013
opposite directions

13 0211 yen and nikkei

The Japanese market has been on a tear, but with any foreign market you need to deconstruct the returns.

The chart shows the last eighteen months, with the three lines indexed to 100 on November 14.  The Nikkei has put in a cool 28.8% return since then, but U.S. dollar investors in that index haven’t done quite so well, up just 11.1% due to the amazing decline in the Japanese currency.

Japan was closed to trading today, so those numbers are as of Friday.  However, the U.S. markets were open, so the returns to buyers of Japanese equity ETFs have an extra day (up nicely, of course; a finance minister pumping stocks will do that) in these numbers:

NKY, which is based on the Nikkei index:  +12.2%.

EWJ, the largest in assets:  +17.1% (it uses a different index).

DXJ, which also uses a different index and hedges out the currency:  +34.1%.

With performance like that, DXJ is bound to draw assets from those chasing performance.  If you’re in that group, be sure to understand that the currency hedge can taketh away too.

The chart shows what a get-the-economy-moving-at-any-cost picture can look like.  Stock prices can go in one direction and the currency in the other.  However, there are a lot of different ways the story can end.  (Chart:  Bloomberg terminal.)