Showing posts with label Nikkei. Show all posts
Showing posts with label Nikkei. Show all posts

Friday, February 06, 2009

Snap Shot of Asian Bourses


So how have Asia's equity benchmarks been performing of late? All charts from Bloomberg.com
For the major ASEAN markets (Malaysia's KLSE-blue, Philippine Phisix-green, Thailand's Seti-yellow, Indonesia's JKSE- orange), we notice some consolidation or possible indications of a "bottom" formation.


For South Asia, only Pakistan's Karachi 100 in green remains visibly weak while the rest seems to be in rangebound. India's BSE 30 (yellow) appears to be drifting at the near lows. On the other hand, Bangladesh's Dhaka in orange and Sri Lanka's Colombo in Blue seem significantly off their lows.

The industrialized export driven economies of Asia seem mostly coasting along the lows (Singapore's STI-blue, Taiwan's Taiex-green and Nikkei-yellow). Only crisis stricken Korea (orange) seems to have improved substantially.

Finally we see contrasting performances in Australia's S&P ASX 200 (green) also wafting near the lows while New Zealand's NZ 50 seems to be testing its resistance level.

Overall, performances have been mixed albeit those with less exposure to global ex-intraregion trade appear to be performing better.

Sunday, February 01, 2009

Learning from Past Crisis; History As Basis For the Future

``When you see that trading is done, not by consent, but by compulsion - when you see that in order to produce, you need to obtain permission from men who produce nothing – when you see money flowing to those who deal, not in goods, but in favors – when you see that men get richer by graft and pull than by work, and your laws don't protect you against them, but protect them against you – when you see corruption being rewarded and honesty becoming a self-sacrifice – you may know that your society is doomed.” Ayn Rand, Atlas Shrugged

Most of us would like to know when this crisis might come to a close. Most of us would also like to know when life might ‘normalize’.

Of course, life, as we know it, won’t likely be the same or “normalize” as it had been during the past decade.

We are likely to live in a world which will be governed by more regulations, higher interest rates, lower leverage, higher taxes, possibly diminished ‘globalization’ in terms of trade, and capital flows and reduced political freedom especially seen through the lens of the once liberal Anglo-Saxon world, as discussed earlier in 2009: Asian Markets Could OUTPERFORM.

Yet even as they undergo rehabilitation, we can’t discount the reemergence of bubbles through other asset classes and the reorientation of the conduct of the world’s political economy. Remember, bubble cycles are the inherent character of our paper money system.

Historical Roadmap

Moreover, while history may not exactly repeat, the lessons of the past may provide us with some essential clues or may function as some sort of a roadmap to help guide us in navigating our way through the present financial crisis.

As we have discussed in Will Previous Crisis Serve As Deserving Guidepost For Today’s Crisis?, Harvard Professor and former IMF chief economist Kenneth Rogoff and Carmen Reinhart recently updated a study of the previous world crises, see figure 1.


Figure 1 Rogoff-Reinhart: Learning From The World’s Past Real Estate-Banking Crises

In the Rogoff-Reinhart paper, the ‘Aftermath of the Crisis’, we are treated to 18 major post war banking-real estate crises of advanced economies including some of the recent emerging markets crises and its consequent impact to domestic real estate and the equity market in terms of pricing based losses and the periods of agonizing adjustments (peak-to-trough).

We can observe that the typical or average housing cycle (right window) losses of real housing prices have been 35.5% and has lasted an average of 6 years. As you may notice, the Philippines, in the wake of the Asian Crisis in 1997, suffered the second biggest loss of 50% after Hong Kong, and where our painstaking market cleansing cycle culminated after 6 long years. It is also important to note that the longest real estate bear market cycle was recorded in Japan and which registered over 15 years of losses.

Next, equity losses averaged 55.9% which lasted for about 3.4 years.

In addition, a defining characteristic of such crises is that the real public debt exploded as governments suffer from falling tax revenues and increased spending to fight off recession. On the average, real public debts ballooned by 86%.

Applying Past Lessons Today

So where are we today?


Figure 2: US Housing Prices (researchrecap) Japan Housing Prices (J. Quinn: Financial Sense)

If we are to base our analysis on the epicenter of today’s crisis which is the US, then housing prices based on the Case-Shiller index has lost 30% (see figure 2, left window), and is almost near the average loss of 35% during similar crises. Peaking in 2005, the housing bear market is now on its 4th year which is also approaching the average of 6 years.

In terms of the bear market cycle in equities, the major US bellwether as signified by the S&P 500 has lost over 50% and is now 16 months old or 1.3 years. Compared to the average of 3.4 years, the equity bear market cycle suggests of a transition for about two years more.

So simplistically speaking 2011 should be a turning point for the US real estate and US equities…if we are to base it on the average.

But as our earlier caveat, all crises aren’t the same.

Further, the average alludes to the typical. Since today’s landscape is global in scope compared against a regional or national phenomenon in the past, it is likely that the disposition of today’s crisis will be distinct.

Besides, the collective global government response has been unprecedented in scale. Importantly, today’s crisis jolts the foundations of the world’s monetary architecture. Hence, today’s crisis may not be the archetype.

What seems to be relevant is that the US government has been implementing almost similar policy responses as with Japan in the 1990s following its bubble bust.

The Keynesian approach of Zero Interest Rate, government infrastructure spending, tax cuts and rebates and monetary manipulations via the purchase of commercial paper, shares of public companies and provision of bailout funds for bailouts only resulted to a prolonged era of distress from which Japan’s real estate fell by over 15 years (see right window) and whose stock market went nowhere from 1990s until today.

Just recently, Japan’s key benchmark, the Nikkei 225 crashed below its support level shaped during the trough of 2003 to register a NEW low. The Nikkei which presently drifts near the 2003 lows reflects a loss of over 80% from the peak in 1990, nearly 20 years ago!

Of course some may argue that the rapid fire response by the US government may do the magic trick. Well, for us, the fundamental defiance of nature’s economic laws will either bring short term panacea with long lasting torment similar to Japan or precipitate another set of collapse.

Conclusion

Nonetheless, in our opinion, the US won’t probably see a bullmarket for years to come, even if the economy manages to emerge out of the recession. The indemnity from the recent crisis will be scathingly enormous and will contribute heftily to the suboptimal growth outlook. Besides, the intensity of government interventions seems likely to create substantial inefficiencies in the economy that should weigh on its productivity. Moreover, the US will have to deal with its ballooning unfunded entitlement liabilities.

Remember, it took almost 25 years for the Dow Jones Industrial to breach its 1929 peak. In the same vein, US benchmarks haven’t successfully broken through the dot.com pinnacle set in 2000, which makes today’s bear market nearly 10 years old! Hence it is likely that the US could be rangebound or muddle through over the next few years or even in the next decade.

Of course, we’d argue otherwise that if the Obama-Bernanke tandem prints an ocean of money similar to Dr. Gideon Gono’s policy approach in Zimbabwe. While this may boost share prices, not out of earnings, but because people may shun the destruction of its currency and seek sanctuary in hard assets or in stocks as ‘stores of values’, the net effect is that any nominal gains will be offset by currency losses.

Thus, the lesson we can get from the Rogoff-Reinhart study may possibly apply NOT to the US or the credit bubble infected economies. But as possible beacon to the performances of economies or markets untainted by the credit bubble structure but had been affected by the contagion from the implosion of the proximate epicenters of the bubbles.

While 2008 had been a year of convergence as we discussed in Will “Divergences” Be A Theme for 2009?, we’d probably see the resurrection of an unpopular discarded theory.


Tuesday, December 09, 2008

China’s “Healing” Equity Markets: The New World Market Leader?

Despite the overload of streaming bad news and pessimism, few have noticed that prior to the “recovery” or “bounce” (depending on the bias of the observer) in the US markets, China’s market has been gradually stabilizing.

courtesy of stockcharts.com

The red arrow shows China’s Shanghai index in a seeming recovery mode (from late October) even as the US S&P have touched a milestone low (blue arrow) in mid November.


To consider, during the advent of today’s bear market, China’s Shanghai index have turned lower almost simultaneously with other Asian benchmarks despite the limited exposure to foreign investors.

And to further allude that China’s Shanghai has suffered the most pain compared to the neighbors after losses tallied to 70% at its nadir.

While it is arguable that today’s recovery may simply be representative of a mere bounce, technical picture appears to indicate otherwise.

The Shanghai composite has broken the bearish year-to-date trend line (pink) aside from the 50-day moving averages (blue) which may point to a segueing to the market cycle process known as a “bottom”.

Of course since today’s global trade structure has put a lot of weight into China…



Courtesy of nationmaster.com

China could signify as a huge driver in shaping the global economy and markets.

And as the region increasingly integrates, this probably would imply for a regional recovery.

So we should probably keep watch with some of the key Asian indices as Japan’s Nikkei. Japan's major benchmark appears to be on its way to test its resistance levels at 9,500 and the 50 day moving averages to corroborate China’s seeming transitioning phase.

And because China in the recent past had accounted for an important consumer for commodities, then we might also add that for China’s bottoming process to be further confirmed, we need to see an equivalent turn in commodity prices as in copper, oil and other base metals, something that has, as of the moment, been missing.

Will China lead the next phase of the market cycle?

Stay tuned.


Sunday, October 26, 2008

Japan’s Nikkei As Indicator


Japan is on the verge of breaking down from its major support levels. The Nikkei closed at 7,649 last Friday, compared to its previous low at 7,607 in April 2003.
Northern Trust: Nikkei 225 Long term chart

Here are some of our observations.

One, in the last major attempt to move forward during the late 1998-99, the Nikkei lost about 61%. Today the Nikkei is down about 58%. From the summit, the Nikkei has lost about 80% since 1989. Thus the tag of the “lost decade”.

Two, a Nikkei breakdown could mean a bottom phase yet to be ascertained since 1989 which also means structural bear markets could last for years.

Three, a breakdown of the Nikkei could signify as a leading indicator to the fate of the US markets over the interim.

Lastly this is not to suggest that the US markets will do a Nikkei’s “lost decade”. While there have been some significant parallels, conditions are greatly different. As an example the lost decade of Japan was “insulated” compared to the more global dependent US whose recent bubble bust has triggered a worldwide contagion. Thus, any comparison of the Nikkei’s travails to the US is an apple to orange comparison.

The point is that a breakdown of the Japan’s Nikkei could likely mean more downside actions for world markets.



Friday, October 10, 2008

Japan’s Nikkei 225: Back to the Future


In 2003 Japan’s benchmark the Nikkei 225 fell to a 14 year low at about the 7,800 level…
Courtesy of chartrus.com

Nikkei has been on a free fall…

As of this writing the Nikkei is being bludgeoned at 8,300

4 years of gains gone to naught.


Saturday, August 16, 2008

Global Recession watch: Japan and Euroland Economic Growth Turns Negative!

Japan suffers from slowing exports and rising consumer prices.

Courtesy of Danske Bank

From the Economist, ``According to data released by the government's Cabinet Office on August 13th, seasonally adjusted real GDP contracted by 0.6% quarter on quarter in the three months to June. As the new data also revise down first-quarter growth, from 1% to 0.8%, the economy's performance in the second quarter looks especially weak. In annualised terms, GDP contracted by 2.4% in the quarter to June. Japanese national-accounts data are revised frequently, so the picture may change as further data releases come out later in the year…

``This reflects the increasing impact on Japan of the various headwinds from the global economy—including weakening demand in export markets, high oil and food prices, and the continuing fallout from the US sub-prime crisis…

And it is the same for the Eurozone…

Courtesy of the Economist

From the Economist, ``Europe is struggling to stay above water. Figures released on Thursday August 14th showed that the euro-area economy shrank at an annualised rate of 0.8% in the second quarter, the first such reverse since 2001. Nor are things likely to improve soon. A closely watched survey of purchasing managers in manufacturing and services slumped in July to its lowest level since 2001. Business confidence has turned down sharply in all of the three biggest economies in the euro area: Germany, France and Italy

``The economy’s downward lurch puts the ECB in an awkward spot. It raised its main interest rate to 4.25% on July 3rd to show that it was serious about controlling inflation, which is well above its target ceiling of 2%. The rate-setters’ fear was that inflation would persist if firms and households used today’s rate as a benchmark for future wages and prices. They are right to worry. In Italy and Spain, wage growth is picking up even as unemployment rises, because of contract clauses allowing workers to be compensated for higher-than-expected inflation.”

Courtesy of stockcharts.com

With the Europe’s Stoxx 50 and Japan’s Nikkei down 27% and 28% as of August 15th, the markets may have already factored in or reflected the GIST of these downside adjustments, in my view.

In the context of Japan’s Nikkei, this observation of Darrel Whitten of Japaninvestors.com should articulate today’s development (highlight mine),

``Excluding the current recession, the 12 prior cycles included recessions that lasted an average of 13~14 months. This implies that Japan’s recession could linger into 2010. Moreover, as the Nikkei 225 has bottomed on average some seven months ahead of these recessions, a bottom in the Nikkei 225 probably won’t be confirmed until Q2 of 2009 or later.

``The good news however is that the Nikkei 225 has already discounted the bulk of the unfolding recession, as it already fell some 29% from a February 2007 high, and is now only about 6% away from what has historically been a post-recession trough (i.e., a 30% peak-to-trough correction). Of course, the previous three pre-recession bear markets involved peak-to-trough corrections of 40%~50%, but this was within the context of the Heisei secular deflation bear market, which we do not believe applies in this case.”

…unless of course, if the deflation conditions in the US and parts of the Europe gorges on the world economy and markets, a scenario we don’t think is likely.