Why Foreign Markets Seem Fickle

Focus: GLOBAL

Jim Jubak Image Jim Jubak Founder and Editor, JubakPicks.com

Japan's market had been soaring until it tripped this week for no good reason. Expect more of this in 2013, as investors flit from market to market in search of reliable returns, writes MoneyShow's Jim Jubak, also of Jubak's Picks.

On January 16, Japan's Nikkei-225 index fell by 2.6%. That was doubly surprising.

First, it was surprising because the Tokyo stock market has been on such a roll-up 25.6% from November 14 to January 15, and 9.4% from December 21 to January 15.

And second, because the "cause" of the drop was a series of absolutely innocuous remarks by a member of the Japanese parliament (who pointed out that a weaker yen wasn't great for Japanese consumers) and two members of Prime Minister Shinzo Abe's cabinet (who noted that a weaker yen wasn't good for all Japanese companies).

That was enough to send Japanese stocks down 2.6% on the day?

Welcome to the wonderful world of hot money, 2013-style. So far this year, we're looking at a market that doesn't have any confidence that the trend of this moment will be the trend of the next moment. And the market is, therefore, constantly sloshing toward the opportunity of the minute or away from the possibility that a trend has peaked.

I think these sloshes will make emerging markets-with their smaller market capitalizations than those of the United States, Europe, or Japan-especially volatile. And that, since these are the markets that look poised to do best in 2013, makes for some very tricky footing for investors.

Let's take a slightly more detailed look at what happened in Japan, and then see how these dynamics apply to the rest of the global stock market.

Finding the Good in Japan
The rally in Japan is all about the yen.