gnarayanan's  Instablog

Send Message
I am a professional accountant with 35 years of experience in emerging markets , Africa & Europe
  • Maximizing The Return On Nikkei Surge 0 comments
    Apr 10, 2013 1:48 PM | about stocks: EWJ, DXJ, FXY

    The recent BOJ quantitative easing and subsequent surge in Nikkei provides a significant opportunity for retail investors. The obvious choice will be either EWJ (iShares MSCI Japan Index fund) or DXJ (Wisdom tree Japan Hedged Equity). As the name suggest DXJ is hedged against currency losses while EWJ is not. The currency moves play a significant role when one invests in Foreign ETF's. Given below is a table which summarizes the movement of EWJ & DXJ after the BOJ announcements

    Date EWJ Closing Price $ DXJ Closing Price $
    04/03/2013 10.47 40.82
    04/04/2013 10.90 43.88
    04/05/2013 10.96 44.51
    04/08/2013 11.07 45.42
    Total Gain $ 0.70 4.60
    Total Gain % 6.70 11.30

    The 11.30% increase in Nikkei is offset by 4.6% of currency losses giving a net gain of 6.70%

    Yet another way of hedging the above currency loss of 4.60% is either to short or buy a put option on FXY (CurrencyShares Japanese Yen Trust) FXY tracks the price of Yen net of trust expenses. Given below is the outcome of this scenario

    Date EW10.96J Closing Price $ FXJ Closing Price $
    04/03/2013 10.47 105.42
    04/04/2013 10.90 101.80
    04/05/2013 10.96 100.17
    04/08/2013 11.07 98.61
    Total Gain 0.70 6.81

    It is assumed that the investor will either short or buy a deep in the money put option of FXY with a delta nearing 100.

    Thus the total gain could be $7.51 as compared to DXJ's $4.60

    The investor should be careful as the above figures are based on the current scenario of surging Nikkei and the weakening Yen. The strategy should be modified based on investor's perception of Yen and Nikkei movement.

    Disclosure: I am long EWJ.

    Stocks: EWJ, DXJ, FXY
Back To gnarayanan's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.