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Michael Gayed: Why Japan Bulls Will Move to Emerging Markets
If bulls like Japan because the yen-depreciation story was so powerful, then they should be enamored with emerging markets.
Michael A. Gayed    

The story being written in Japan is a fascinating one. Abenomics has resulted in a ton of optimism over a final end to decades of deflationary overhang. The Nikkei (INDEXNIKKEI:NI225) surged in 2013, and many are arguing we are in the midst of a "healthy pullback."  Maybe this is true.  After all, following huge moves higher, stocks tend to decline or at least consolidate to take a breather.  However, this is largely predicated on the idea that unprecedented monetary stimulus by the Bank of Japan will continue to push the yen lower, increasing exports as foreign buyers get attractive to cheaper yen-denominated goods.
 
But what if the yen actually strengthens because the people on the ground simply can't handle the rising cost of imported goods, which Japan is so reliant upon?  If bulls like Japan because the yen-depreciation story was so powerful, then they should be enamored with emerging markets, which, like Japan, are broadly dependent upon exports. Take a look below at the price ratio of the Japanese Yen ETF (NYSEARCA:FXY) relative to the Wisdom Tree Dreyfus Emerging Market Currencies Fund (NYSEARCA:CEW). As a reminder, a rising price ratio means the numerator/FXY is outperforming (up more/down less) the denominator/CEW.



The yen, relative to emerging market currencies, has gone sideways for nearly a year now, and it may be poised to break out higher. This means that the yen may end up outperforming emerging market currencies. If you like the idea of buying countries that have weakening currencies relative to other exporters, then emerging markets -- and not Japan -- is the bet to make.  This would be healthy given that buyers may end up viewing Japan's exports as comparatively more expensive over time, pushing money into those countries that many assume will never rally again.
 
Bullish Japan and not emerging markets? Inconsistent idea. Take a look at the price ratio of the iShares MSCI Emerging Markets ETF (NYSEARCA:EEM) relative to the iShares Japan ETF (NYSEARCA:EWJ). 



I'm pretty sure Abe's arrows aren't enough.

Twitter: @pensionpartners
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No positions in stocks mentioned.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Michael Gayed: Why Japan Bulls Will Move to Emerging Markets
If bulls like Japan because the yen-depreciation story was so powerful, then they should be enamored with emerging markets.
Michael A. Gayed    

The story being written in Japan is a fascinating one. Abenomics has resulted in a ton of optimism over a final end to decades of deflationary overhang. The Nikkei (INDEXNIKKEI:NI225) surged in 2013, and many are arguing we are in the midst of a "healthy pullback."  Maybe this is true.  After all, following huge moves higher, stocks tend to decline or at least consolidate to take a breather.  However, this is largely predicated on the idea that unprecedented monetary stimulus by the Bank of Japan will continue to push the yen lower, increasing exports as foreign buyers get attractive to cheaper yen-denominated goods.
 
But what if the yen actually strengthens because the people on the ground simply can't handle the rising cost of imported goods, which Japan is so reliant upon?  If bulls like Japan because the yen-depreciation story was so powerful, then they should be enamored with emerging markets, which, like Japan, are broadly dependent upon exports. Take a look below at the price ratio of the Japanese Yen ETF (NYSEARCA:FXY) relative to the Wisdom Tree Dreyfus Emerging Market Currencies Fund (NYSEARCA:CEW). As a reminder, a rising price ratio means the numerator/FXY is outperforming (up more/down less) the denominator/CEW.



The yen, relative to emerging market currencies, has gone sideways for nearly a year now, and it may be poised to break out higher. This means that the yen may end up outperforming emerging market currencies. If you like the idea of buying countries that have weakening currencies relative to other exporters, then emerging markets -- and not Japan -- is the bet to make.  This would be healthy given that buyers may end up viewing Japan's exports as comparatively more expensive over time, pushing money into those countries that many assume will never rally again.
 
Bullish Japan and not emerging markets? Inconsistent idea. Take a look at the price ratio of the iShares MSCI Emerging Markets ETF (NYSEARCA:EEM) relative to the iShares Japan ETF (NYSEARCA:EWJ). 



I'm pretty sure Abe's arrows aren't enough.

Twitter: @pensionpartners
< Previous
  • 1
Next >
No positions in stocks mentioned.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

More From Michael A. Gayed
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Michael Gayed: Why Japan Bulls Will Move to Emerging Markets
If bulls like Japan because the yen-depreciation story was so powerful, then they should be enamored with emerging markets.
Michael A. Gayed    

The story being written in Japan is a fascinating one. Abenomics has resulted in a ton of optimism over a final end to decades of deflationary overhang. The Nikkei (INDEXNIKKEI:NI225) surged in 2013, and many are arguing we are in the midst of a "healthy pullback."  Maybe this is true.  After all, following huge moves higher, stocks tend to decline or at least consolidate to take a breather.  However, this is largely predicated on the idea that unprecedented monetary stimulus by the Bank of Japan will continue to push the yen lower, increasing exports as foreign buyers get attractive to cheaper yen-denominated goods.
 
But what if the yen actually strengthens because the people on the ground simply can't handle the rising cost of imported goods, which Japan is so reliant upon?  If bulls like Japan because the yen-depreciation story was so powerful, then they should be enamored with emerging markets, which, like Japan, are broadly dependent upon exports. Take a look below at the price ratio of the Japanese Yen ETF (NYSEARCA:FXY) relative to the Wisdom Tree Dreyfus Emerging Market Currencies Fund (NYSEARCA:CEW). As a reminder, a rising price ratio means the numerator/FXY is outperforming (up more/down less) the denominator/CEW.



The yen, relative to emerging market currencies, has gone sideways for nearly a year now, and it may be poised to break out higher. This means that the yen may end up outperforming emerging market currencies. If you like the idea of buying countries that have weakening currencies relative to other exporters, then emerging markets -- and not Japan -- is the bet to make.  This would be healthy given that buyers may end up viewing Japan's exports as comparatively more expensive over time, pushing money into those countries that many assume will never rally again.
 
Bullish Japan and not emerging markets? Inconsistent idea. Take a look at the price ratio of the iShares MSCI Emerging Markets ETF (NYSEARCA:EEM) relative to the iShares Japan ETF (NYSEARCA:EWJ). 



I'm pretty sure Abe's arrows aren't enough.

Twitter: @pensionpartners
< Previous
  • 1
Next >
No positions in stocks mentioned.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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