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Viewing entries tagged with 'NZDJPY'
Japan Stocks and Mr Abe - an Opportunity?
All
I have profiled (ad nauseam) the potential for JPY weakness over the last 6 months of last year with good effect as the USD/JPY rose from 77.00 to 90.00 and the NZD/JPY from 58.00 to 75.00 in the same period.
What I haven’t done is document the opportunity for very large rises in Japanese stocks.
The real speed of the JPY move has come as the market came to understand that former PM Abe would once again hold power, pledging to learn from his previous mistakes as PM and essentially do the opposite (monetary policy wise) to his last tenure. Mr Abe says that in 2006 he mistakenly backed the BOJ when they raised interest rates. Following that decision the Nikkei stock index fell by half and the JPY appreciated by 40% against the USD.
Now Mr Abe is back at the helm and with his pledge to enforce a 2.0% inflation target on the BOJ, and the measures they’ll need to implement to achieve that will have to be nothing short of extraordinary. Indeed, one analyst I have come to respect, says Abe’s program will be like Bernanke’s but ‘on steroids’ !
Now to understand the potential for Japanese stocks we need to look back a bit in history. In 1989 the Nikkei Index was close to 40,000 and only this month the Nikkei was languishing below 10,000…………………incredible that the valuation of Japan’s corporate sector is currently worth ¼ of what it was more the 20 years ago. Now that’s a bear market huh? Here is a chart back to 1963 (great year that by the way!)
Japan.IZ – Click here to view chart
Now the other chart that screams that Japanese stocks are absurdly cheap is the Price to Book ratio that shows that in 2011 (I couldn’t find a more up to date chart but I understand that ratio hasn’t changed much) the index as a whole was trading BELOW is net asset backing at 0.9 !
Japan’s Market Index – click here to view chart
So here’s the nib. Japan has a stock market that is super cheap (ridiculously so?) and now they have a government hell bent on cutting interest rates and printing money forcing investors back into stocks. That and the weakening JPY, which significantly helps the blue chip exporters, should see Japanese stocks much higher this year.
I’ll be spending the rest of this week looking for the best vehicles (financial instruments) to express this trade and will revert. For now I’ll buy a small amount of Nikkei and look to add a bigger amount on any dip.
Cheers G.
Chart of interest - perfect night for 'risk on' view
All
This morning there are numerous charts suggesting we could be on the verge of some very healthy moves higher i.e. risk on.
At the very least the overnight moves gives some very clear parameters to trade against, particularly if you hold a (extremely) bullish view as I do. I always have to check myself when my sentiment is so strong, however I will not be ‘falling in love’ with any positions. My stop loss levels will be clearly defined and my risk taking appropriate for the size of my account. It’s not a crime to be wrong but it is to stay wrong!
Ok here we go.
1) Dow Jones Index - Opened 1% down, ended up 0.85%. Essentially a bullish engulfing day with huge rejection tail.
DJI.I – Click here to view chart
2) EUR/USD – Butting up against 18 month trend line resistance. Down again or explode up through it…..what’s your call?
EURUSD – Click here to view chart
3) EUR/USD – A closer look. Its abundantly clear that a MASSIVE battle is taking place between bulls and bears right now given the price action of the last two days. I like to view it in somewhat barbaric terms. A battle is on and to the victor….the spoils! For whichever camp prevails in this battle the rewards will be quite long lasting I think.
EURUSD a closer look – Click here to view chart
4) NZD/JPY – As suggested in yesterday’s piece ‘Part 2 – NZD/JPY – a pause?’ when moves are strong the 10/20 day ‘river’ is a great indicator and overnight it did a nice job (as did my short term model) so I suspect that NZD/JPY should now not go under 67.00
NZDJPY – Click here to view chart
There are a myriad of charts that all look the same but obviously there’s no point reproducing them all here. So I’m very bullish and have clear parameters to trade against. It’s an exciting prospect for a trader.
G.
USD/JPY and JPY crosses - is this the retirement trade?
All
The USD/JPY has attained the state that I refer to as ‘trending’. Price pushing up hard and fast against spaying Bollinger Bands . The ‘morning star’ rejection of lower levels that I documented on the 10th of November has been a wonderful indicator.
From observing this technical state in the past I’ve noted that ‘pullbacks against the trend can be quite sharp but they are usually brief by time’ (24/48 hours).
This pair, in my opinion has been incredibly depressed for a number of years, and it could really fly going forward. Why not 100+?
For a bit of perspective (and showing my age) this pair was at 250.00 when I started in FX and had been at 360.00 in the late 1960’s.
USDJPY – click here to view chart
What about Gold (the store of value as central banks globally attempt to inflate their way out of trouble) versus the JPY? Check the 1 year consolidation break out!
XAUJPY – click here to view chart
And NZD/JPY ? The Christchurch rebuild will make NZ’s economics look unlike any other western economy and on the other side of the ledger Japan’s problems (which I’ve documented many times recently) undermines the JPY. 100 on this cross anyone?……………………….and you get paid to hold it!
NZDJPY – click here to view chart
A trade weighted type portfolio of each of these pairs may be vastly rewarding going forward.
G.
Update - the Graveyard - USD/JPY
All
This trade is progressing slowly but surely. To recap, the bones of this trade are;
# The 30 year run of trade surpluses has now turned to deficits as the Japanese turned off their nuclear power stations after the Tsunami inspired Fukushima disaster. As a result the Japanese now import the vast majority of their energy requirements.
# Japan’s demographics are poor with the population forecast to decline to 90 mio by 2055 from the 127 mio peak in 2004. Those citizens that are left will be much older too.
# The Bank of Japan has set forth on a new round of monetary policy easing. Top Japanese research house Nomura have been widely quoted recently regarding the new policy saying that the “JPY is likely to weaken due to the BoJ becoming more proactive as a result of likely changes in government leadership as well as changes at the Japanese central bank in coming months.
# …and the budding theme that we here at Edge Capital are watching with great interest is the vast supplies of cheap energy (shale gas) that the U.S is currently harnessing. We think this could be a major kicker for the U.S in coming years. Cheap currency and super low interest rates have been prevailing for 5 years now, add super lean business organisations and top it off with cheap energy. That should be one tasty cake when baked.
USDJPY – click here to view chart
P.S. Got to love NZD/JPY on this basis too !
Cheers G.
NZ GDP Comment
All
I thought this line from Dominick Stephens, Chief Economist, Westpac, is potentially very telling.
| ”New Zealand is going into a bulge of stronger GDP growth |
| fuelled by the Christchurch rebuild. It won’t be sustained in |
| the long term, but it’s got a wee while to run yet before the |
| rebuild peaks in 2014/2015. |
I’m very bullish on the NZD’s prospects against all comers.
A seasoned Corporate Treasurer I know well went to a presentation by the RBNZ two weeks ago, and the takeaway from that was, the RBNZ’s believe the export sector is actually holding up very well in the face of current exchange rates. Further, the treasurer said that the RBNZ’s message was consistent with the anecdotes he was hearing from around the country as well. Now the GDP data confirms.
Given the 3 year bulge of growth that the Christchurch rebuild will add, NZ data is going to look very different from the rest of the developed world for quite some time.
Anyone for NZD/AUD at 0.8800, NZD/JPY at 100 ?
Don’t let your thoughts be bogged down by old norms.
G.
