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"Biggest weekly fall in the Nikkei in 3 years." (Friday, CNBC)
Will institutions and funds now go shopping to buy a bargain? Several of you have told me that the fundamentals don't look right over there. It could be a "trade," a momentum-play...
In my opinion, it's a trade. I really see no potential improvement in core fundamentals in the mid-to-long term and see potential for them to worsen. I really like a couple of companies there (Fast Retailing being the main one), but not enough to buy.
Will institutions buy? Perhaps. If someone believes that Abenomics will actually lead to a sustainable (and I emphasize sustainable, not just a rise in assets that leads to a bust and nothing fixed about the underlying economy.) recovery for Japan, go right ahead. Otherwise, it's a trade.
Edited to add: as LLJB notes, there are Japan currency hedged ETFs from Wisdomtree (a couple of different ones, I believe). I'd look at those if I had any interest in Japan.
I think you have to believe the Nikkei's performance is largely due to disappointment that the BOJ didn't move to more aggressively support the economy on Monday. As I posted earlier this week in a separate discussion I still believe in Abenomics and think it will cause stocks to rise as long as fundamentals don't deteriorate further or better said, as long as expectations for fundamentals don't deteriorate further. In my other post I was concerned about the extent to which a devalued yen would offset returns and then I realized Wisdom Tree has an ETF focused on Japan that hedges the currency risk, so if you believe in Abenomics then a currency hedged vehicle should do the best.
A currency hedged Japan ETF is a dual edged sword. It will capture more of any move up but also more of any move down.
Until, Japan can deliver on its economy fundamentals so that their markets are not just inversely tied to yen for a technical trade, there is no core strategy there, only momentum trade. It is also being influenced by the huge flows of money in and out as momentum swings. This is not a sign of healthy fundamentals.
I don't know if Abenomics can deliver that fundamental health. If I look at the health of their exporting industries, they are not as competitive in quality or innovation as they used to be because rest of Asia has caught up with cheaper labor. Internal economy is still in stagnation. Not sure how they can fix that without taking leadership in some front, like they did with cars or electronics in the past.
Fundamentals and Japan, in the same sentence? The Nikkei and the yen have tracked each other up and down pretty closely for almost 10 years. Japan suffers from the worst demographics in the developed world and the recent consumption tax increase certainly isn't going to help the economy. I'm not convinced Abenomics are going to fix the underlying problems either, but I do believe the BOJ is going to have to weaken the currency and that will drive stocks higher. My point of view is that you either believe in Abenomics and you short the yen or hedge your currency risk in stocks, or you stay away, because there are a lot of places in the world that have better fundamental prospects than Japan.
Comments
Will institutions buy? Perhaps. If someone believes that Abenomics will actually lead to a sustainable (and I emphasize sustainable, not just a rise in assets that leads to a bust and nothing fixed about the underlying economy.) recovery for Japan, go right ahead. Otherwise, it's a trade.
Edited to add: as LLJB notes, there are Japan currency hedged ETFs from Wisdomtree (a couple of different ones, I believe). I'd look at those if I had any interest in Japan.
Until, Japan can deliver on its economy fundamentals so that their markets are not just inversely tied to yen for a technical trade, there is no core strategy there, only momentum trade. It is also being influenced by the huge flows of money in and out as momentum swings. This is not a sign of healthy fundamentals.
I don't know if Abenomics can deliver that fundamental health. If I look at the health of their exporting industries, they are not as competitive in quality or innovation as they used to be because rest of Asia has caught up with cheaper labor. Internal economy is still in stagnation. Not sure how they can fix that without taking leadership in some front, like they did with cars or electronics in the past.