Nikkei surfaces back to levels seen 30 years ago
- Nikkei still needs to gain almost 30% to surpass its record highs last seen in 1989; before the index went on to lose more than half its value.
- Japanese equity markets are trading at a lower PE multiple than S&P 500, despite their stronger earnings & lower interest rate. The Topix trades at 14 times forward earnings, compared to 21 times for the S&P 500.
- The recent changes on the political front (PM Yoshihide Suga resignation) could help step up the markets further as a new administration brings prospects of spending boost and targeted reforms
On Valuation front four tech firms — Apple, Alphabet, Amazon and Facebook — with a combined market cap of $7.3tn are now worth more than all 2,187 companies that make up the Topix stock market in Tokyo (Source: Insider weekly)
There are Japan focused ETFs listed in the US with exposure to listed companies operating in Japan (available for investment by Indian citizens)
Energy – The Shortfall that no one is talking about, the shortfall that is getting serious
- Regions like North Asia, Europe and China compete over finite supply of fuels like coal & natural gas used to heat household & power factories. This has pushed the price of natural gas & electricity to record levels fueling inflation and threatening to stall the economic recovery; just when businesses reopen and people return to office.
- Demand for heating will jump when temperatures turn colder over the next few months, which could trigger power rationing.
- Utility companies are passing on price rise to consumers, at the same time everything from food to transportation costs are also rising due to supply chain issues; creating challenging environment for politicians trying to gather support for energy transition.
Rising energy prices is inflationary, so unless we see these prices falling; the entire argument of calling inflation ‘transitory’ goes for a toss.
There are Energy focused ETFs listed in the US with focus on companies involved in exploration/production & distribution (available for investment by Indian citizens)
The process of ending massive money printing has started
- ECB is the second giant to taper. While, it is way behind the Bank of Japan, the Bank of Canada, the Bank of England, the Reserve Bank of New Zealand, and the Reserve Bank of Australia; but, still ahead of the Fed.
- This is in line with the consensus among central banks, that QE needs to end before interest rates can be hiked, on the rationale that QE pushes down long-term rates, while raising policy rates pushes up short-term rates, which would wreak havoc on the yield curve.
What’s taking the Fed so long and when will it stop QE & hike rates? This Week FOMC gave us a clue.
Having said that, is hard to miss the positive correlation between Equity markets & Global liquidity since the beginning of present series of QE.
It is so easy to see the bubble but waiting for it to unwind takes years & it is the waiting that is the hardest part
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