An article in the FT paints a rather better picture than the one of fear we’ve currently been seeing and suggests that the current moves in EM’s have unfairly caught Japanese stocks up in the whirlwind.
While banks, margin traders and hedge funds all dumped stocks aggressively, BNP equity strategist Shun Maruyama at BNP says that this was “not a sell-Japan story”.
“Japanese equity is a very liquid asset which investors bought the most of in 2013. It is being attacked as a proxy for Asia,” he says
Other strategists agree that the big sell off looks hard on Japan and is more twinned with falls in USD/JPY, which has reached a high correlation with Japanese stocks. The correlation rate is at 0.4 and three times the ten year average.
One part that makes a lot of sense that there could be some bargains to be had is that company valuations on the Topix index are trading less than 50% of the S&P (meaning the bubble isn’t as big over there
) and that companies are reporting decent earnings and results.
Full story (gated, but free to subbies) here
There’s also another situation that could be affecting the market and that’s the new NISA savings scheme that went live last month. I had details of it early in the year. While on the face of it it should be bullish for stocks, if there is a big take up, anyone wishing to move current portfolios into the new scheme will have to cash in what they have now and re buy them into the program. How much of that is going on remains to be seen but we could be seeing a period of cashing in before rebuying. What might offset that is new NISA savers moving cash hoards into stocks. However, the EM jitters might have more people rushing to take profit on their holdings then joining the new buyers waiting out the current turmoil. It’s just a thought of something that could potentially in the mix.
Either way there is good cause to say that the blowout in Japan is overdone and that any further big falls could become a very profitable trade for the long term. With the market down 14%down (on yesterdays close) from the 2013 highs we could already be entering the zone where bargain hunters will start coming in. It’s still very early days in all these moves and not easy to judge but just like seeing a 400 pip move in GBP/JPY as a good “stretch” trade the same strat can be applied here. It’s one I’m going to be keeping a close eye on.
Time for a bargain?
