WISE 2017 PICK: JAPANESE STOCKS
Japan has undeniably made noises this year, with a continuous weakening of currency and a rally during the second half as a recovery from an initial gloomy outlook. This surge is partly due to rising global rates and the aforementioned slide in yen, which have proved beneficial for several sectors such as banks and brokerages. An increase in reflationary forecasts especially following Trump’s victory is another factor as well. Now, the question lies in whether this market positivity is bound to last up to the succeeding year but analysis have concluded they are still headed to a promising path, and will remain an intelligent choice for investors.
For starters, weak denomination, which has traditionally bolstered equities before, is still predicted to prevail as the marketplace given the central bank’s new policies. In addition, the market is still sensitive to shifts in yen and urges index purchases abroad. The BOJ, meanwhile, recently announced a decision to anchor government bonds yields around zero, resulting to a gap with treasury returns. FED’s raises in rates are seen to further widen this difference, which will add pressure to currency. It also provided a consistent bid through buying ETFs, while equity funds have been ramping up equity allocations, along with frequent buybacks of shares and dividends by companies.
Earnings in the country are also remarkably higher, regardless of a lukewarm domestic growth and slumping corporate margins. Moreover, data assessment showed sentiments have improved, coupled with a hike in economic indicators as well.
Contrary to previous observations that momentum does not work in the nation's market, it is now more driven, since the current trends turned out to be friendlier than before. However, risks are still present, which are likely to be caused by China's cash devaluation, and a bullish sentiment of brokers. Worries on how long trends will last are on the surface, although it overpowered by investors starting to get comfortable with the stocks again after a period of hesitance. There are also hearsays that efforts to boost income may just burden already diminished margins if businesses are not able to increase prices in response
The catch is in the ability to sustain the rally of figures for a longer term, especially given its stable condition. At present, corporate returns need to be increased, along with an extended decline of yen.
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