The mood throughout equity markets around the world has taken a distinct turn for the worse and the “commentariat is divided” as to the reasons why, notes KBC Financial Products’ Japanese market strategist Jonathan Allum.
Indeed, there are practically as many theories as there are commentators, but Allum himself has such an engagingly succinct take on it all that we wanted to give you a few paragraphs of his latest client newsletter.
On the question of equity markets:
For the irredeemably ursine, of course, there is nothing to explain — the inexplicable liquidity fuelled/dead cat/bear market rally of the last few months has just collapsed under the sheer weight of its own improbability and we are sliding back into the terminal abyss they have been looking forward to for so long. More open minded observers seem split between two diametrically opposing explanations.
One view believes that the generally strong economic reports that we have seen in recent weeks will bring forward the date at which the various stimulus measures adopted all over the world are withdrawn. Thus what appears to be good news is, in fact, bad. The alternative approach is to argue that much of the good news, e.g. the US Q3 GDP, is in fact historic and that some of the more forward looking data, which have been consistently positive in recent months, have begun to show signs of running out of puff, raising the possibility of the dreaded double dip.
On Japan, meanwhile, Allum takes a typically contrarian approach:
The superbears always used to have a soft spot for Japan as the major economy most likely to collapse (Iceland and Zimbabwe don’t really count). In recent years their baleful gaze has been more directed to the US, but the ebbing of the optimism has caused them to dust down their Japanese doomsday scenarios, usually focusing on debt, demography and default.
My taste for the apocalyptic does not extend beyond St John [The Book of Revelation] but if you like that sort of thing you can check out the articles in [Monday's] FTfm and Daily Telegraph by Edward Chancellor and Ambrose Evans-Pritchard respectively, or look up the Barrons article by Jonathan Laing.
Related links:
Japan’s minister for disruption strikes the world’s biggest bank – FT Alphaville
The ups and downs of Japan’s first post-LDP week - FT Alphaville
Japan votes to swim with the current of history – The Times