This article outlines the key considerations when deciding whether to sell foreign stocks, bonds or foreign-currency-denominated insurance in order to realize foreign-exchange gains arising from a rapid yen depreciation.
When the yen is depreciating rapidly, investors may be advised to sell assets showing foreign-exchange gains and convert the proceeds back into Japanese yen. However, selling immediately simply because foreign-exchange gains have arisen is not necessarily the best course of action. The article explains the key points to consider when deciding whether to sell, including spreading sales over time and, depending on the nature of the assets, choosing not to sell without careful consideration.
The first key point is to focus on the breakdown of the valuation when investing in foreign stocks. The article highlights differences in the settlement methods for investment trusts, overseas ETFs and foreign stocks, the use of settlement in foreign currencies, and the need to confirm when the exchange rate is applied. It urges investors to carefully examine the relationship between foreign-exchange gains and losses on the stock valuation.
The second key point concerns foreign bond investments: investors should consider the difference between the return from holding a bond to maturity and the characteristics of the individual bond. While an individual bond is redeemed at face value at maturity, investment trusts and ETFs have no maturity date and their prices may fluctuate significantly in response to interest-rate movements. The article therefore explains that decisions should be based on comparisons with the yield.
The third key point is whether to surrender a foreign-currency-denominated insurance policy before maturity. The tax treatment of a surrender gain may differ, and surrender charges may also have an impact. At the same time, decisions should take into account the original purpose of the insurance and how the funds will be used in the future.
The article also emphasizes the importance of making decisions without losing sight of the original investment objective. It concludes that investors should consider comprehensively whether a sale will help achieve that objective, rather than focusing solely on foreign-exchange gains.