Stocktake

Bulls/bears trade views on Nikkei

Japan’s economic and fiscal policy minister Akira Amari raised a few eyebrows recently when he said he wanted the Nikkei to hit 13,000 by the end of March.

The index, then trading at 11,150, has already risen by more than 30 per cent since November.

Policymakers will “show our mettle” and “continue taking steps to help stock prices rise”, the minister promised.

“Ponzi-based monetary policy,” scoffed market strategist and Pragmatic Capitalism blogger Cullen Roche.

Reuters’ Felix Salmon, however, said Japan was desperately attempting to break two decades of deflation; goosing the market could help do so.

Japan remains cheap, bulls add, with the Nikkei over 70 per cent below its 1989 peak and about 40 per cent below 2007 levels.

It may well hit 13,000 by March.

One month gains of 20.1 per cent, 16.3 per cent and 16.1 per cent were recorded in 1990, 1986 and 1994 respectively, so rapid gains are certainly possible.

However, Rory Gillen ( gillenmarkets.com) notes that the Nikkei is now almost 20 per cent above its 30-week moving average – something that has happened on only six or seven occasions during the past 60 years.

Conclusion? “Hold off investing in Japan until a correction occurs”.

US on a high as European markets far from peak

European and US indices have been stuck in secular bear markets since 2000.

However, the damage is much closer to being repaired in the US.

The Euro Stoxx 50 index, despite a recent surge, is barely half of its 2000 peak, even as the SP 500 and Dow Jones Industrial Average close in on all-time highs.

In fact, the Wilshire 5000 – a lesser-known index that tracks all US equities – last week hit an all-time high for the sixth time in the past 14 trading days.

For traders, however, the US climb has been a snooze. Bespoke Investment Group noted last week that the difference between the Dow’s intraday high and intraday low over the previous 13 sessions was just 1.35 per cent – the lowest 13-day spread in 26 years.

'Great rotation' overhyped

There’s been much talk about 2013 marking a “great rotation” out of bonds and into stocks. Last month, US equity funds enjoyed their largest monthly inflows in nine years.

But a Credit Suisse report last week warned that fund flows may be overhyped. The SP 500 more than doubled between March 2009 through 2012, the report noted, despite fund outflows of more than $400 billion. Seven of the 12 worst months of equity outflows happened in 2011/12, while there were only two weeks with inflows of $1 billion during that period. The years 2008, 2010, 2011 and 2012 saw the worst annual outflows (2008 was the only down year).