Some major currencies are low, low, low now. Case in point: the Chinese yuan. It certainly helped boost exports, but if the yuan strengthens, it doesn’t necessarily follow that China’s exchange traded funds (ETFs) will take a hit.
This holds true for all currencies, really. Gary Gordon for ETF Expert has a few points illustrating that there isn’t always a direct relationship between a country’s currency strength and its economic growth:
- The Japanese yen stayed strong throughout the financial crisis, hurting its export-dependent economy that has a low personal consumption and high savings rate. The yen has finally started to weaken, boosting ETFs like iShares MSCI Japan Index (NYSEArca: EWJ). [Strategies to Play the Yen.]
- The U.S. dollar gained 10% in the last four months, but that hasn’t hurt us any. In fact, the major market indexes have soared to new recent milestones.
- The euro is in the dirt right now, but that’s not paying off much for the eurozone denizens are its economy. [Our Guide to Currency ETFs.]
All this to say: whether a currency is weak or strong, don’t buy, sell or make predictions about single-country ETFs based on that information alone. Consider the fundamentals and, most importantly, follow the trends. [How to Follow Trends.]
For more stories about Japan, visit our Japan category.
