Maybe, just maybe there is value
I HAVE LARGELY been bearish on equity markets going into the start of 2014 and maintain that the overall tone is likely to be quite negative in the near term. One market that I have taken a small nibble on is the Japanese Nikkei at around the 15 100 level.
My thinking had been to attempt to trade the band between 15 100 and 15 500 and hope that the yen would weaken against the US dollar. In hindsight, I think I might have gotten in too early but I’m comfortable that Japanese equities will ultimately attract asset flows that have moved out of emerging markets. I subsequently bought in quite aggressively at the 14 400 level. I have seen one strategist calling the Nikkei down to 9 000 points by the year end, but I’m not convinced. The Japanese market has given up 10% since 30 December 2013, so it is well into a correction phase.
While the sales tax increase could weigh on the market, Japanese fiscal and monetary policy is likely to be accommodative for the stock market for the remainder of the year. Research house BCA also points out that the Japanese are encouraging domestic pension funds to increase their exposure to local equities. If this happens then the Nikkei could be primed for a bounce.