Goldman to Fidelity Call for Calm After Global Stock Wipeout – Bloomberg 02-04-14

Salient to Investors:

Catherine Yeung at Fidelity Investment Mgmt is advising calm, adding that profits are rising and shares just got a lot less expensive as being a contrarian and buying when things seem bad is often a good thing.

Goldman Sachs to AMP Capital Investors and JPMorgan Chase are advising clients to hang on.

Kathy Matsui at Goldman did not expect the US weakness, but sees no sufficient reason to change their fundamental earnings outlook and said the market remains attractive. Matsui’s 12-month forecast for the Topix is 1,450. The Topix is at 15 times earnings, close to its lowest valuation in 3 years.

21 strategists predict the S&P 500 will reach 1,956 in 2014.

Vladimir Tsuprov at TKB BNP Paribas said the optimism for Russia is long gone and the only surprise was how quickly the ruble had declined in January.

Nicola Marinelli at Sturgeon Capital said we have become addicted to having one decent month after another, but looking at 2011 and 2008, this correction is simply one of thousands – there is not a feeling of panic.

David Kelly at JPMorgan Funds said short-term forces in the US point to continued growth in all major categories of demand, while the long-term emerging market growth story remains intact Kelly said very low domestic interest rates for investors holding the vast majority of global financial assets should continue to pull money away from fixed income and towards equities.

Citicgoup said inflation-adjusted interest rates are still too low in developing nations to predict an end to the retreat in currencies.

Tim Schroeders at Pengana Capital said stock markets are vulnerable to a further correction that could surprise some people and sending the Nikkei 225 down as much as 25 percent from the peak.

Almost 200 stocks in the S&P 500 traded below their 200-day moving average yesterday, more than any time in 2013.

Investors are pulling money from emerging market ETFs at the fastest rate on record.

Losses among commodities have been less than equities. Bjarne Schieldrop at SEB said everyone and their grandmother have rolled into equities as they continued to get higher day by day, while there are not so many heading for the door in commodities when things look less optimistic.

The IMF predicts the global economy will grow 3.7 percent in 2014. Japan, Europe and the US are forecast to expand together for the first time since 2010.

The outlook for global earnings remains robust. Earnings for the MSCI All-Country World Index are forecast to increase 17 percent in 2014 and 11 percent in 2015 and 2016.

Nader Naeimi at AMP Capital Investors says people bailing now may regret it – the fear coming back into the market is good from a contrarian perspective and removes some froth from the market, reduces complacency and creates a buying opportunity.

Karim Bertoni at de Pury Pictet Turrettini said we are in a classic correction and should keep our calm as a 10 percent decline would not be surprising  and is something that happens a couple of times of year.

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Japan Sees Worst Developed-Stock Rout as Nikkei 225 Drops – Bloomberg 02-03-14

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Gary Dugan at Coutts & Co. said the stronger yen is probably the main driver of the bigger declines in Japanese stocks, and investors are locking in profits as they back away from equities. Coutts said the yen halted its slide and started to strengthen, potentially curbing company profits.

Sumitomo Mitsui Asset Mgmt said a sales tax increase for April will damp consumer spending.

Tetsuo Seshimo at Saison Asset Mgmt said Japan’s market finally came to its senses after investors ignored risk too much toward the end of last year and the market was out of balance.

Economists say an increase in Japan’s sales tax to 8 percent from 5 percent in April will trigger a 4.1 percent annualized contraction in Q2 and test the resilience of the growth recovery.

Peter Elston at Aberdeen Asset Mgmt said reigniting animal spirits and implementing structural reforms in Japan won’t be easy, and given that Japan had performed so well in 2013, there is a greater scope for the market to fall.

Makoto Kikuchi at Myojo Asset Mgmt said the Nikkei 225 will tumble to 9,000 by year-end as gains in taxes, living costs squeeze consumers and a slowdown in emerging markets cause an unexpected 20 percent decline in corporate earnings for Nikkei 225 companies in the 12 months ending March 2015.

Matthew Sherwood at Perpetual has turned negative on Japan and said investors need to see a follow-through in earnings before the market can add more to already substantial gains.

Sakthi Siva at Credit Suisse said the momentum of earnings upgrades in Japan is ebbing and the relative attractiveness of Japan is diminishing – our biggest concern is it is a crowded trade.

Overseas investors bought a net 15.1 trillion yen in Japanese shares in 2013, the largest amount figures began in 1982.

The Topix is at 14.4 times estimated earnings versus 15.2 for the S&P 500.

Takuya Takahashi at Daiwa Securities said the Japanese stock rout is overdone because  overall, earnings will see double-digit growth. He said stimulus tapering in sync with the US economic recovery should give confidence to the market.

Masaru Hamasaki at Sumitomo Mitsui Asset Mgmt said the impact of the sales-tax increase will weigh on the market and keep shares from reaching a new high – there is limited room for Japanese shares to rally from here.

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How I Am Playing The Game – Jim Rogers On The Markets 01-30-14

Salient to Investors:

Jim Rogers said:

  • Prefers the Japanese market, down 60 or 70 percent from all time highs. to the US which is at all time highs. Abe has no constraints, can spend and print as much as he wants.
  • Like Russia’s very depressed stock market. Russia is hated more than any other place except maybe Argentina. 

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This may destroy Japan’s economy in future – Jim Rogers Blog – 01-17-14

Salient to Investors:

Jim Rogers writes:

The Japanese Central Bank said it will print unlimited amounts of money, is doing it, and 20 years from now people will say that is what killed Japan. In the meantime, all the money will go into Japanese shares.

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Pesek on Asia: China’s Balancing Act – Bloomberg 12-16-13

Salient to Investors:

William Pesek writes:

  • I agree with Tom Holland at The South China Morning Post that China cannot both maintain 7 percent-plus growth rates and implement huge reforms.
  • Thailand has seen 18 coups in the past 60 years.
  • The whole reason for being bullish on Japan Inc. so far has been a weaker exchange rate, a stronger yen as the Fed starts to taper is a big worry, along with large Japanese businesses paring their projections for capital spending this fiscal year, signaling economic headwinds as a sales-tax hike looms in April.

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Foreigners Add Most Japan Stocks Ever in Bullish Abe Bets – Bloomberg 12-11-13

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Outside buyers invested $125 billion in Japanese stocks in 2013 through November, passing the previous highest total in 2005, which preceded a 1.9 percent increase for the Topix in 2006. November net purchases were the highest since April.

Wayne Bowers at Northern Trust said Abe’s policies will push Japanese shares higher in 2014, and it does not need much underlying growth to see another leg up.

Yoshihisa Okamoto at Mizuho Asset Mgmt said the Topix will rise to 1,750 by the end of 2014, as vigor from foreign investors is changing the behavior of domestic investors, , including public-pension funds. The average estimate of 6 polled analysts calls for a 19 percent increase.

Earnings jumped last quarter at more than 1,280 of Japan’s largest listed non-financial firms by the most since 2007. The Tankan Index shows sentiment among large manufacturers is the strongest since the early stages of the global credit crisis in 2007.

Nader Naeimi at AMP Capital Investors added to holdings in November for his dynamic asset allocation funds, based on an outlook for the yen to weaken to 107 per dollar and the Nikkei 225 to rally to 18,000 in Q1 2014. Naemi said Abenomics and a push towards inflation will make Japanese shares outperform US equities.

The Government Pension Investment Fund was advised last month by an expert panel to put more of its 124 trillion yen into private equity, commodities, REITs and overseas assets, and consider passive investing based on the JPX-Nikkei Index 400, which starts next year and focuses on return on equity.

James Moffett at Scout Investments said it will be interesting to see whether Abe’s reforms are really going to work or not.

Topix valuation peaked at 1.37 times assets in May, the highest since August 2008.

Gary Dugan at RBC’s Coutts said it is easy for this market to lose 10 percent very quickly, and when the economy struggles next year this market could lose you money.

About 18 percent of 272 investors surveyed in November by Bank of America Corp. listed Japan as their favorite developed-equity market next year, compared with 44 percent for the U.S. and 31 percent for Europe.

Citigroup Inflation Surprise Index for Japan climbed to a record last month, signaling price data have surpassed economist estimates more frequently than they fell short.

Michael Kurtz at Nomura said that with radically game-changing BOJ monetary reflation pressing ahead in any case, we expect 2014 will offer a second year of progress beyond Japan’s 2 lost decades, with likely continued equity outperformance.

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Leading Japan Economist Says Abe On Right Track, But BOJ a Risk – The Wall Street Journal 12-05-13

Salient to Investors:

Richard Koo at Nomura Research Institute said:

  • Abenomics is finally addressing Japan’s fundamental economic problem: getting households and businesses to borrow. In this balance-sheet recession, consumers preferred to aggressively pay down debt instead of spending following the burst of the asset price bubble in the early 1990s.
  • Companies and individuals are still wary of taking on debt. The trauma that keeps companies from borrowing can be overcome with measures like tax breaks for corporate investment, a part of Abenomics.
  • Government stimulus to make up for a lack of private-sector demand is good, but plans to lower the corporate tax rate in tandem with other tax incentives is not, because it would reward all profitable firms, not just those that are investing.
  • Higher wages is something that should happen naturally when the economy improves.
  • Monetary easing did produce results including an 80% rise in stocks to their peak in May, and a 20% drop in the yen against the dollar, but what happened was the result of foreigners buying Japanese stocks, not renewed optimism by Japanese investors.
  • Money printing is useless if people do not use the cash, so easing will not stop price declines, or deflation, which is caused by a lack of borrowing and spending. Relying on more easing could even be a liability, so the BoJ should not ride its luck too far.
  • The worst-case scenario would be a bold move by the BoJ that causes government bond holders to believe it will reach its 2% inflation target and unload bonds – the subsequent yield spike would make it impossible to stimulate more and leave banks with big losses on their balance sheets before the economy really recovers.

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Pimco’s El-Erian Sees Global Growth at About 3% in 2014 – Bloomberg 11-26-13

Salient to Investors:

Mohamed El-Erian at Pimco said:

  • The global economy will expand 2.75 percent to 3.25 percent in 2014.
  • The big question is less the next 12 months and more what comes after, given we are being sustained by experimental, untested policies. The US and Japan have outperformed other markets because of Fed stimulus programs.
  • The Fed will begin tapering in the next 6 to 12 months because continuing QE involves costs and risks.
  • The Fed will keep interest rates at zero and become more aggressive with guiding the markets on its moves.

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