We know there’s a lot going on in other key markets of the world, but just to focus on Japan, briefly, as one of the few equity markets cited this week (along with Canada) to have done relatively well amid the gloom, doom and meltdown fears.
But typically, just as hopes rise for a Japanese comeback, it all starts coming unstuck – like a piece of sushi in too much soy sauce.
The Nikkei’s recent losing streak has created much debate. On Friday, the benchmark Nikkei 225 average fell for the 12th consecutive day, prompting commentators to bemoan its longest consecutive loss for many decades.
Bloomberg reported Friday that the Nikkei average fell 27.51, or 0.2 per cent, to 13,237.89 in Tokyo, while the broader Topix index sank 0.14, or 0.01 per cent, to 1,297.88.
The last time the Nikkei fell for 12 days straight was in 1954, when the end of the Korean War caused a slump in Japanese industrial sales to the US military, Tatsuo Kurokawa, an investment analyst at Japan Asia Securities, told Bloomberg.
Key factors for Japan’s latest bout of malaise, according to the FT, include rising fears about the impact of inflation on slowing economies. Japanese carmakers have been hit by some disappointing US car sales and a strengthening yen, highlighting concern over the outlook for consumer spending in one of the country’s most important export markets.
While the Nikkei 225′s losing streak “does not put Japan in a positive light, five of the daily declines were less than half a percentage point, not large losses”, notes the FT. The Nikkei has also been outperforming other large markets.
Since the beginning of the second quarter, the Nikkei has gained 6.1 per cent, compared with the Hang Seng, which is down 5 per cent, the FTSE Eurofirst 300, which has lost 6.9 per cent, and the S&P 500, which has declined 2.5 per cent.
In addition, while Japan’s core consumer price index is at a decade high of 1.5 per cent, including energy, this is lower than in some other markets, such as the UK where consumer inflation is at 3.3 per cent and South Korea which is at 5.5 per cent.
“Japan is seen as the sort of place that should be relatively well placed in the current world environment and its performance over the last three months bears that out,” Jonathan Allum, Japan strategist at KBC in London, told the FT. “There has been a grudging realisation that Japan may not be relatively such a bad place overall.”
Indeed, Allum says in a separate client note issued Thursday, the Nikkei’s overhyped losing streak is “not quite as remarkable as it seems, given the well known methodological inadequacies of the closely watched market barometer”.
The much more respectable TOPIX rose as recently as last Tuesday. It is nothing like as dramatic as the recent slide in the Ho Chi Minh index which fell for 25 days on the trot (although this index has now reversed and today registered its eighth successive rise) but one would have thought it might have generated some form of government response of the sort triggered by previous declines.
Displaying his talent for seizing on – err, memorable – facts, Allum asks whether anyone could, for example, forget the outburst of one of Japan’s former finance ministers Masajuro Shiokawa, over a market slide back in 2002?: “They [stock prices] are running down like diarrhoea. It’s inexcusable.”
Perhaps needless to say, no such comments from the current (straightlaced) Fukuda government.
John Vail, strategist at Nikko Asset Management, is similarly sanguine:
“The number of days of decline is NOT important and the amount of the recent decline is not particularly large either in absolute terms or in relation to trend”, he notes.
Japan is reacting to global events and not much of it is due to problems originating from Japan, although the property price correction is having some effect on the property and finance sectors, Vail adds.
Consider, he says: Consumer demand in the west is decelerating and in the US, post-stimulus demand may weaken even further – by the fourth quarter of this year, we should start to see a decrease in commodity prices.
Japan’s market is still strongly outperforming global markets in yen terms, and “valuations are attractive and yet not low enough to indicate any sort of panic”.
In addition, Japan’s financial system is “much stronger” than the western financial system, [how times change...] although a few more companies will need to admit losses from their domestic and international investments, according to Vail.
Dividend yield is once again now strongly above the 10-year Japanese government bond yield, whichv makes Japanese equities attractive for intermediate term investors, in our view, as dividends seem set to rise further rather than fall, as Japanese managements now seem to realise that paying dividends is constructive for their shareholders and the company’s stability.