news

한어Русский языкEnglishFrançaisIndonesianSanskrit日本語DeutschPortuguêsΕλληνικάespañolItalianoSuomalainenLatina

China Fund News reporter Guo Wenjun

After three consecutive days of sharp declines, especially the epic panic sell-off on August 5, Japanese stocks rebounded sharply in early trading on August 6. The Nikkei 225 index rose as high as 10.98%, and the Nikkei 225 index futures even hit the circuit breaker.

Why did Japanese stocks plunge?

Kristina Hooper, chief global market strategist at Invesco, said that the sharp drop in Japanese stocks in the past few days was caused by a combination of factors, and the appreciation of the yen was certainly one of them.

She believes there is still some unwinding or profit taking going on. The Bank of Japan's rate hike is a key issue, and many expect the yen to appreciate further.

In addition, Kristina Hooper pointed out that it is worth noting that Japanese bank and financial stocks have fallen sharply. Normally, the Bank of Japan's interest rate hike will benefit the financial industry (net interest margin improvement). Before the recent plunge, Japanese bank stocks had risen by more than 40% this year, fully reflecting the market's expectations for the Bank of Japan's interest rate hike. It is also possible that the market is worried that if interest rates rise too quickly, its financial company bond holdings will face book losses.

Greg Hirt, chief investment officer of Allianz Global Multi-Assets, believes that although global markets are waiting for weaker U.S. economic data to prove the rationality of the Fed's upcoming rate cut, after the release of the disappointing U.S. employment data last Friday, investors' panic was still aroused in the face of the substantial weakening of the U.S. economy. At the same time, the overall performance of the technology sector was weak. In this case, even if the Bank of Japan raises interest rates, it will not ease the panic in the market. Although the sell-off may be excessive in the medium term, this sharp drop will still make investors adjust their future investments.

Greg Hirt said that there are many factors that triggered the major sell-off in stocks on Monday, and although these factors may not be completely related, any market reaction may be self-reinforcing given the recent strong market trend and the low liquidity environment during the summer vacation. In addition, the sudden surge in volatility from ultra-low levels will force some risk-based investors to withdraw.

Hong Hao, chief economist of Si Rui Group, told reporters that the market situation on August 5 was very obvious. It was the yen carry trade that was caused by the liquidation and forced liquidation due to the rapid appreciation of the yen, which eventually triggered such a sell-off.

Bloomberg senior economist Taro Kimura released a report saying that Bloomberg's decomposition model shows that concerns about the deteriorating economic conditions in the United States and the possible impact on Japan are the biggest factors, and risk aversion is also playing an increasingly important role.

Has the turning point of Japanese stocks arrived?

Kristina Hooper said: "We believe that this pullback in Japanese stocks may be a healthy 'breathing pause' after the recent investment boom. Moreover, given the structural advantages that have continued for many years in the Japanese economy, we believe that the selling pressure is only temporary. Japan's wage growth is far higher than the recent historical level, supporting the growth of domestic demand in the Japanese economy."

Kristina Hooper said that considering that the Federal Reserve may cut interest rates several times before the end of 2024, the yen is expected to continue to appreciate against the US dollar. The historical correlation between the US dollar/yen cross rate and the Topix stock price index has always been quite high. Nevertheless, she believes that it is not advisable to withdraw from the Japanese stock market and take an overly tactical approach to the yen, thereby missing out on the structural benefits that may appear in Japan in the next few years.

Song Yu, BlackRock's chief China economist, believes that Japan's economic development is currently very stable, with a complete property rights system and strong institutional continuity. In a world where geopolitical conflicts and trade wars are constantly occurring, Japan's peaceful years make it a good safe haven. With the relaxation of immigration policies, a large influx of talent and capital, coupled with a series of reforms recently introduced, have resolved many of its domestic problems.

Hong Hao said: "Since Japan's fundamentals are deteriorating, I am more inclined to believe that Japan's market turning point has arrived, not just due to technical and liquidity reasons."

Can the bull market in US stocks continue?

On August 6, Eastern Time, the three major U.S. stock indexes all recorded a sharp decline for the third consecutive trading day. Both the S&P 500 and the Dow Jones Industrial Average recorded their largest single-day declines since September 2022.

Regarding the recent sharp drop in US stocks, Cheng Shi, chief economist of ICBC International, believes that US technology stocks have continued to rise this year and have accumulated a large increase, becoming the main driving force for the upward trend of the US stock market. However, with the recent rebound in market expectations for interest rate cuts and the disturbance of Trump's transactions, some funds chose to take profits and wait and see policy changes, resulting in adjustments to related targets.

Zhao Yaoting, global market strategist for Asia Pacific (excluding Japan) at Invesco, also said that the market is beginning to worry about whether the rise of the "Magnificent 7" in the US stock market can continue, which is not unreasonable. The bull market in artificial intelligence has lasted for some time, and the valuations of many growth stocks may have reached a level that is difficult to increase further. One of the triggers for the recent stock market adjustment is the disappointing earnings of some large technology companies. It may take longer than expected for the power of artificial intelligence to be realized.

So, does this mean that the US stock market has reached a turning point? "Nevertheless, the second quarter's mixed earnings growth rate is expected to increase by 9.7% year-on-year, with the four US 'Big Seven' companies contributing the most. If these four companies are excluded from the calculation, the expected earnings growth rate is only 5.7% year-on-year." Zhao Yaoting said: "The expansion of the scope for earnings growth will help the market continue its upward trend."

“Our analysis suggests that the AI ​​investment theme is sustainable and has room to grow for many years, although the upward trajectory of AI-related stocks may be uneven,” Zhao said. “Current valuations of US AI-related stocks, while high, are still reasonable and could rise further. I believe that the market will regain optimism about AI and bring another boost to US stocks, although it may take some time.”

Cheng Shi said that funds have not obviously left the US stock market, but have shown the characteristics of industry rotation and small-cap stocks catching up, indicating that funds are still optimistic about the medium- and long-term trend of US stocks. On the other hand, judging from the recent mid-term results of US stocks, the performance of technology stocks is still strong, and the fundamentals support the medium- and long-term rise.

Hong Hao also believes that the US stock market will reach new highs after this deep adjustment. This is because the AI ​​revolution is in the ascendant, the US fundamentals are fine, and liquidity conditions are also improving.

Kuang Zheng, chief investment officer of HSBC Global Private Banking and Wealth Management China, also said: "The recent correction in technology stocks is mainly due to profit-taking and short-covering, rather than changes in fundamentals. The long-term fundamentals of US stocks are still positive, and we continue to hold a moderately high view on US stocks."

Editor: Captain

Audit: Wooden Fish

Copyright Notice

"China Fund News" enjoys the copyright to the original content published on this platform. Reproduction without authorization is prohibited, otherwise legal liability will be pursued.

Contact person for authorized reprint cooperation: Mr. Yu (Tel: 0755-82468670)