Foreign Markets Question

[Floppyman]

Hi all,

Can someone provide me with an explanation why watching the Nikkei exchange is like riding a wild roller coaster? Seems like it's up 100 points one day, then down 200 the next and the trend continues like that. Are Asian markets just more volatile than American (Western) markets? Thanks in advance for explaining this to me.

[mbossman2]

the nekkei is based upon Yen and $1 = ~120 yen or so and when a move of 1000 is like a move of 10 points on the DJIA.

plus the nekkei is a bit more volatile than the US markets can be...

[Floppyman]

the nekkei is based upon Yen and $1 = 20 yen or so and when a move of 1000 is like a move of 10 points on the DJIA.

plus the nekkei is a bit more volatile than the US markets can be...

Thanks mbossman, do you have any why the Nikkei tends to be more volatile? Thanks again.

[mbossman2]

i'll be honest...I just "know" that it is (I got the info just like you did, I was told) but exactly why I never dug into...for my foreign aspect of my portfolio that is purely a mutual fund play for me. it is tough enough tracking a company without having to mix in things like cultural shifts, foreign political climate (US politics are quite enuf thank you very much), foreign exchange rates and the like. I leave that to the 'experts'.

DavidM, can we have your input on this one?

[rjfvillarosa]

At the moment the Japanese interest rates are very low, this allows currency traders to borrow heavily in Japan, buy huge quantities of European currency and invest that currency in the same country, which usually in turn has a high interest rate. At the moment that European country is the United Kingdom, the interest rate in Japan I believe is less than one percent, where as in the UK the interest rate for investment is probably somewhere around four or five percent, remember these people don't deal in the same interest rates that you see in your local high street banks.
Now just do the mathematics, the interest return on millions of Pounds Sterling at four percent is far greater than the interest costs on millions of Yen at less than one percent. This heavy trading in a local currency can make traders nervous and is possibly why you are seeing such large fluctuations on the Hong Kong and Japanese markets

[mbossman2]

that may explain part of it...the Japanese discount rates have been ridiculously low over the last decade or so ever since there banking sector stumbled in the mid 90's (ranging from 1.75% to 0%).

[doctorgonzo]

What matters is the percent change, not the absolute numbers. Sure, it goes up and down 100 or 200 points in a day, but the average itself is near 20,000, so that's a change of less than a percentage point a day.