To the untrained eye, it would appear that a weaker Japanese
yen is a good thing. It certainly has been for Japanese equities.
Since early November, the CurrencyShares Japanese Yen Trust
) has plunged over 14 percent, buoying a sharp rally in Japanese
equities along the way.
So strong has the rally in Japanese stocks been that the
WisdomTree Japan Hedged Equity Fund (NYSE:
), an ETF that offers investors a hedge against USD/JPY
fluctuations, has surged over 25 percent since early November
while seeing its assets under management total roughly quadruple
since early December.
Statistics like that obfuscate the fact that there is a
downside to a plummeting yen, at least for some countries that
are direct export competitors of Japan's. So while investors have
their pick of
with which to profit from the weaker yen, there are some other
funds that might belong on avoid or short lists should the
Japanese currency continue its downward spiral.
iShares MSCI South Korea Index Fund (NYSE:
). South Korea is being hit by a triple whammy of sorts. The weak
yen is bad news for South Korean exporters because many of these
firms, particularly the automobile and electronics producers, are
in direct competition with Japanese makers of the same goods. So
on its own, the weak yen can be a problem for South Korean
Unfortunately, the won has
appreciated against the dollar this year
and that could crimp profits for South Korean exporters that rely
on the U.S. as a primary end market. Add to all that, South
Korea's central bank kept interest rates at 2.75 percent at the
conclusion of its meeting last month and appears in no hurry to
The result is South Korea's Kospi is one of just two major
Asian exchanges (Malaysia's is the other) to trade lower this
year. It has gone somewhat unnoticed, but the iShares MSCI South
Korea Index Fund is not off just a little year-to-date. Even with
Tuesday's modest gain, the ETF has plunged over nine percent
since the start of the year.
iShares MSCI Germany Index Fund (NYSE:
) Like South Korea, Germany faces multiple currency-related
issues. The euro's strength against the dollar alone is
problematic for an export-driven economy such as Germany. Adding
to that strain is the fact that Germany and Japan are two of the
largest automobile producers in the world. Whether its Hondas and
Volkswagens or Lexus and BMW, both countries are highly dependent
on the U.S. as a source of profit and revenue.
For its part, Germany is not taking the weak yen lightly.
Policymakers there have accused their counterparts in Japan of
manipulating the yen and Germany has shown signs of
to capital controls for the first time in years
. As for EWG, the largest Germany ETF by assets, the fund is
modestly higher year-to-date, but it has also recently
shown signs of wilting
iShares MSCI France Index Fund (NYSE:
) France faces the same problem as Germany: The euro has been
persistently strong against both the dollar and the yen. For
France and EWQ, the matter at hand is not automobiles and
industrial goods as much as it is luxury products such as fashion
and leather accessories. LVMH Moet Hennessy Louis Vuitton SA
), EWQ's fourth-largest holding, has pledged to raise prices in
Japan if the
continues to weaken
Something else to consider: Sanofi (NYSE:
), EWQ's largest holding, among other European multinationals,
benefited from the
weaker euro in the second quarter of last
. The reverse scenario could apply now that the euro has soared
against the greenback and the yen.
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