Current market conditions are negative, but with the market close to 20-year lows, much of this may ...
Current market conditions are negative, but with the market close to 20-year lows, much of this may already be reflected in stocks.
Recent economic news has been mixed with industrial production below the lowest analyst forecast. Positive numbers include the Meti's All Industry Index, and machinery orders both being more than double consensus expectations.
Exports are likely to fall as the dollar weakens and the US economy slows. However Japanese exports to China were up 32% year-on-year in 2002 making it Japan's second largest export market and largest import supplier.
A capital-rich country with leadership in production technology trading with a nation with low labour costs and a growing domestic customer base is a perfect match. Japanese companies are among the best placed to take advantage of this opportunity given that since 1981 Japan has accounted for over 59% of all bilateral aid to China. Even with slowing global growth some exporters are still winning.
Stock supply and demand issues are likely to dominate over the next few months. Some selling pressure is easing, however it is difficult to identify the incremental buyer with foreigners and individuals reluctant to invest.
The city banks have sold down their equity holdings to levels equal to their tier one capital. Pressurised selling from this source may be easing, although we can be certain of more selling as the banks have committed to reducing holdings below the legal maximum. Furthermore, hand-back to the government from companies of their substitutional pension holdings looks likely to extend the traditional period of technical selling beyond the end of the fiscal year.
More positively, the first hand- back of substitutional pensions will be being re-invested by the government in October.
Company buybacks are likely to be above this year's record levels and the Bank of Japan will still be buying banks' cross holdings. The technical problems look set to be with us for several months, but there is light at the end of the tunnel.
Valuations are attractive, the caveat being that valuations are only positive ex-financials and ignoring net profits. Extraordinaries have become a consistent feature of the Japanese market, and if you take the opinion that this situation will continue then valuations should be judged on bottom-line earnings.
Positive earnings momentum has been dismissed as cyclical. If earnings rise into March 2004, as consensus suggests, investors may have to face the possibility that the long talked of Japanese restructuring is producing results.
It is too early to comment on the new central bank governor Fukui's plans, but with an emergency meeting in his first week and more co-operative tones emerging from his office there are reasons to be hopeful.
Short term there are undoubted negatives for the market ' technical selling, no dramatic moves as yet from Bank of Japan head Fukui, questions over global growth and the North Korea situation. However, there are many positives and this is not the time to get lost in unjustified bearishness.
Exports to China on the rise.
Positive earnings momentum.
Machinery numbers are better than expected.
Putting the tech into protection
Square Mile’s series of informal interviews
Fallout from Haywood suspension
Launching later in 2019
£80bn funds under calculation