Spread Between DXJ, EWH Offers Potential Lucrative Trade: Credit Suisse

Credit Suisse analyst Victor Lin says in his April 17, 2014 research note that the traditional spread dynamics between the WisdomTree Japan Hedged Equity Fund (NYSEARCA:DXJ) and iShares MSCI Hong Kong Index Fund (ETF) (NYSEARCA:EWH) are likely to normalize in the near future.

The spread between the two funds shot up to an abnormal level recently weeks as can be seen in the chart below.

Note how the ETF spread exceeded (-) 1.5 standard deviations recently for the first time since July 2013 when it had shot beyond (+) 1.5 standard deviations (shown in the chart on the right in red highlights).

“In our monitoring of liquid ETF pairs that have shown...