Investor sentiment improved drastically last week as the Nikkei 225 Stock Average gained 5.3% to end the week at 15,680.67. There were a number of factors supporting stocks, particularly later in the week as N225 futures in Chicago traded at a premium to Osaka. U.S. stocks and investor interest in Japan was helped by conviction of another Fed rate cut.
Nikkei 225 futures in Chicago rose 205 points (+1.3%) to 15,790, compared to a Friday close in Osaka of 15,730 and Singapore of 15,710.
The Chicago N225 futures premium is considerably less than where it was ahead of last Thursday’s open when there was a 375 point difference. For today’s open, there’s a more modest 60 point difference. Stocks will seemingly continue trading to the upside, however, there will likely be profit-taking given last week’s broad gains. The 25-day A/D MA improved from the mid-60s early last week to nearly 90% by Friday’s close.
However, to keep things in perspective, in spite of last week’s rally, the N225 is a far cry (about 14%) from its year-to-date high of 18,300 set intra-day back on Feb. 26 — yes, that’s right, the good times back in late Feb., just before Alan Greenspan said there was a bubble in China and a sell-off in China was blamed for a global “risk reduction” sell-off. Japanese stocks ended up being sold the most and have yet to recover, while Shanghai, Hong Kong and most other Asian stocks went on to set new highs. That said, it’ll be a milestone in itself to recover 16,000 and hold it. Last year the N225 closed at 17,225 and ended the first-day of trading in 2007 at 17,353. Ending at/near that level would be nice at this point, but may be asking for too much.
Back to the present, as of Friday’s close, the N225 was trading at 1.78x book, 16.95x forward earnings, 17.86x trailing earnings, with a forward yield of 1.29% and a trailing yield of 1.16%.
TOPIX 1st Section was trading at 1.68x book, 17.64x forward earnings, 20.16x trailing earnings, with a forward yield of 1.48% and a trailing yield of 1.42%.
TOPIX 2nd Section has the lowest book and P/E ratios: 1.00 p/b and 15.39 f/p/e. JASDAQ has the highest yield on a trailing and forward basis at just under 2.0%.
Keep an eye on the yen. With the fed set to cut again and probably again and again, it only makes sense the yen is poised to strengthen against the dollar. Interestingly however, the yen eased against the dollar last week and ended at 111 in NY on Friday. Think of the yen as a double-edged sword.
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