You've probably been aware that it seems certain securities have traded more and more similarly in recent years, especially since the market panic of 2007/2009. Many large broad-based stock mutual funds have posted remarkably similar performance numbers. There are always those stocks/commodities/sectors/indices that chart their own course, however.
Let's take a look at some of the major Asian & Pacific markets using the most liquid & popular ETF vehicles.
For China, we'll use iShares China 25 (FXI) (green in the charts below).
For Japan, iShares Japan (EWJ) (red in the charts below).
For Pacific Region, iShares Pacific Ex-Japan (EPP) (yellow) (this holds Australia, Hong Kong, New Zealand & Singapore shares).
For India, PowerShares India (PIN) (purple).
Despite great differences in the makeup of these various countries and their individual markets & stocks, you can see in the performance chart below that FXI, EWJ and EPP have been very correlated since 2011. On a net basis, they are all down between 9% and 13% in this time frame. And while the performance trendlines have shown some periods of one or another diverging, they have tended to revert to a similar mean.
India has been a different story. Whether looking at PIN or another major India ETF, WisdomTree India (EPI), it has been a clear laggard versus these other regional ETFs. As you can see below, basically its performance has been twice as bad.
FXI EWJ EPP PIN Performance Since 2011
While we're still early in 2012, there has been somewhat of a de-coupling of these ETFs that I find interesting. Take a look at the 2012 performance chart below:
FXI EWJ EPP PIN Performance In 2012
Thus far this year the loser has become the winner, with EPI outpacing the other Asian ETFs. Additionally, while all the ETFs are higher, the correlation between them hasn't been as strong — considering the wider range of 3% to 14% net gains. Japan has been the laggard thus far in 2012.
Bottom line at this point is that the extremely close performance correlation between FXI, EPP and EWJ may be in the process of breaking down. This still isn't confirmed over a longer-term period, however. Less correlation is generally a healthier sign, in my view, as it shows less overall group think and mass accumulation/distribution by large firms.
The other thing to keep an eye on is the possible re-emergence of India stocks in 2012. PIN has been downtrending since late-2010 and we may see a significant retracement of some of the losses in 2012.
