Japanese Stocks Poised for Bounce to 11,000

 

Japanese Stocks Poised for Bounce to 11,000
Japanese Nikkei 225 Stock Average, which has lost 9.6 percent this year, may rise 20 percent through February next year, according to a technical analysis by Mitsubishi UFJ Morgan Stanley Securities Co.

The gauge may climb toward 11,408, the intraday high for the year achieved on April 5, said Naohiko Miyata, chief technical strategist at the brokerage unit of Mitsubishi UFJ Financial Group Inc., Japanese biggest bank by market value. Miyata says the gauge may be set for a sustained period of advance as the yen enters its final phase of gains against the dollar and after the measure found support at a key Fibonacci level.

Day-by-day we are seeing more signs that the gauge has bottomed out. Miyata said in a telephone interview. It;s very possible that the Nikkei will start testing its April high in a pattern similar to the one we saw last year.

Miyata also believes the yen may start weakening next month, helping to boost the Nikkei.

The dollar-yen rate has been moving in an 11-month cycle, touching its low when it enters a new phase, he said. The Japanese currency rose to its highest level for 2009 when it traded at 84.83 on Nov. 27. Taking that as a starting point, the end of the 11-month cycle will be this month.

The yen should start to weaken significantly from next month, with the Nov. 3 Federal Open Market Committee meeting as a turning point, Miyata said.

As the saying goes: buy on expectation and sell on fact. If the U.S. does carry out quantitative easing as people expected, there will be selling of the yen, Miyata said.

The Fibonacci sequence was identified by Italian mathematician Leonardo Fibonacci in the 13th century. The ratio between the numbers, about 0.618, is known as the golden mean, and is used by technical analysts to find levels of resistance and support.

According to Paul Chesson, manager of Invesco Perpetual’s Japan fund, which tops the best 10-year performance tables, it’s all about timing.

In 2002, he said after the Nikkei bounced that it was “a false dawn”. And again in 2006, he said that valuations were “too high” to be a bull. He was right both times.

“People usually sell Japan at the low points, and are all over it like a cheap suit when it has gone up for a couple of years. Last time everyone recommended it was 2006 when the market was 100pc higher than it is today.

“If you buy on a high you’ll be disappointed,” said Mr Chesson, who says valuations are a key factor today. “The market was too expensive 10 years ago, but now it’s too cheap. A fund manager only invests in 30 companies, not the whole market, so he can still perform well even if the market does not.”

Mr Chesson’s change of heart is the main reason why some investors are optimistic.

Deflation has long been a factor in Japan, but Mr Rose said this should not concern the investor too much.

“It has been tackled several times over the past 10 years, but I invest in companies, not politicians, and these will succeed.”

Although Japan may be geographically linked to the big emerging markets of China and Russia, economically it could not be more different.

Japan is a developed market and so does not have the same room for exponential growth that its neighbours have experienced in the past decade – and are expected to continue to have.

He invests in companies that are undervalued. He stresses that he picks companies, rather than invests in sectors or the stock market as a whole.
 

 

Japan Sets Interest Rates at 0 pct

Japan’s central bank has launched a 5 trillion yen ($60 billion) effort to buy a wide range of debt, including government bonds, corporate IOUs, real-estate investment trust funds and exchange-traded funds, setting off global concerns that central banks around the world are prepared for more quantitative easing.

The moves by the Japanese and U.S. central banks indicate that global monetary policy is approaching the end of the road, having exhausted nearly every tool of monetary policy available to stimulate economies that remain resistant to job growth.

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