Best Week in Two Years Leaves Japan Stock Bulls Feeling Redeemed
Comment of the Day

September 20 2018

Commentary by Eoin Treacy

Best Week in Two Years Leaves Japan Stock Bulls Feeling Redeemed

This article by Min Jeong Lee and Keiko Ujikane for Bloomberg may be of interest to subscribers. Here is a section:

A deeply-rooted “misperception” that the Japanese economy will give way to deflation and lead to an eventual collapse of local equities has been a drag, keeping investors blind to positive developments, according to Musha. Most recently, belief that Japan will be crushed in the escalating trade conflict between the U.S. and China has propelled bearish views, he said.

Japan’s economy grew at the fastest pace in more than two years during the second quarter, as companies cranked up capital spending to meet global demand and cope with a severe labor shortage. Growth is expected to slow during the second half but remain steady well into 2019, when a sales-tax increase slated for October will pose a challenge to consumers.

The better than expected 11 percent jump in July core machinery orders helped highlight that robust capital expenditure is Japan’s driving growth, according to Jonathan Allum, a strategist at SMBC Nikko Capital Markets Ltd. In London. This is one factor that stock bears may have been missing and could prove to be a catalyst for a rebound, he said.

Eoin Treacy's view

There are three points that are worth keeping mind with regard to the Japanese market. The first is the Bank of Japan is still engaged in quantitative easing and is actively buying stocks. The second is the economy is doing well with low unemployment and a high participation rate. The third is valuations are not demanding and compare favourably with both Wall Street and Europe.

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