“International investors who propelled the biggest rally for Japanese shares since 1987 would have earned almost as much in the Standard & Poor’s 500 Index once the yen’s 16 percent tumble is taken into account.
The Topix Index, the country’s broadest equity measure, has climbed 41 percent in the 74 days since the rally began in November. After adjusting for the yen’s depreciation against the dollar, the return shrinks to 18 percent, or three percentage points more than the S&P 500 (TPX), according to data compiled by Bloomberg. This year’s 18 percent advance in the Nikkei 225 Stock Average (NKY) falls to 6.8 percent in dollar terms, less than the 8.8 percent increase by the U.S. benchmark index.
Foreign investors who bought a net 4.19 trillion yen ($43.9 billion) during the rally’s first 16 weeks are repeating a pattern that has occurred during advances since at least 1997. The erosion highlights the hazards of the world’s third-largest equity market, where prices have moved in the opposite direction of the yen 67 percent of the time the last four months.
“People just simply keep looking at the return and not paying attention to the risks,” Malcolm Polley, who manages $1.1 billion as chief investment officer at Stewart Capital Advisors LLC in Indiana, Pennsylvania, said in a March 6 phone interview. “You’re trying to make your money on the currency side and the market side, but the outcome is only good if you make the right call on the market and on the currency.”