What is the present technical situation of equities in Japan?
The Nikkei 225 index is in a position worth bearing in mind. As we have already mentioned, over a month ago it broke through the 12,000 points barrier – something not seen since the middle of 2001. The next increase goal is 14,500 points (an 18% appreciation on present levels). This objective may be achieved in the first quarter of 2006 if prices remain above the present level of 12,000 points.
How are Japanese equities holding up as regards other bourses this year?
If the relative evolution of this index is studied with regards to its principal referents in 2005, what can be seen is that despite the Yen-return (source currency) offered by the Nikkei 225 being less (7.15%), when the currency effect is taken into account (Euro to Yen conversion) what we see is that the total return rate (12.66%) on the appreciation of the Yen against the Euro and Dollar is higher than that obtained in the S&P500 (10.88%), the EuroStoxx50 (9.78%) or the Ibex 35 (9.45%).
What is TechRules.com’ quantitative model strategy?
From the purely quantitative point of view that characterises us here at TechRules.com (we aim to reduce the subjective stance of our decisions to ‘0’), the present strategy is to buy in this market. As seen in the TechRules.com’ ‘T-Report’, the model bought at 11,223.65 at the beginning of June and placed an option stop at 11,614.71. The present strength of the upward trend is 0.85%, placing it in second place with regards to other principal global financial markets (17 indices) after the Brazilian stock market index (BOVESPA INDEX).
In the short term commentary, within the present upward movement, if we wish to add or increase positions we are able to take advantage of price cuts under 12,220 if they occur.
What does the TechRules.com’ risk analysis tell us?
Volatility has continued to diminish for over a year when it was at 20% compared with present levels, which are situated at 12.22%. They are rallying slightly this month. These are historically low levels and we are more than likely approaching minimums; it may be an interesting moment to buy options (cheap prices due to low volatility).
The ‘VaR’ (Value at Risk) figures obtained are showing no greater capital loss than 2.87% on a weekly basis, with a 95% confidence rating.
What about the Fundamentals of the Japanese economy?
In the short term the Yen is suffering the effect of the latest news surrounding the Japanese economy. Industrial production in July was weaker than projected, falling 1.1% with regards to the same month last year.
A larger contraction in household spending and a reduction in retail sales (approximately 60% of the economy is based on these) than that expected by analysts have had a negative effect on the currency and stock market.
The Japanese economy has been going through a slow recovery since 2001 after more than 15 years of crisis and it is quite normal that macroeconomic data suffers ups-and-downs at the present time. The economy is still going through a deflationary phase in spite of improvements to productivity and growth. These data are surprising if the 54% increase in the price of petrol over the last year, which has meant increased costs for manufacturers, is taken into account.
Another factor to stand out is a possible revaluation of the Chinese Yuan (which would be the second in two months), something that would have a positive effect on the Japanese economy. At the moment this is just market rumour.
As for the Japanese currency, the Yen, the market may be discounting a possible slight interest rate rise. This rise would have a very positive effect on the Yen. This would be something which has not taken place in years and have a considerable psychological effect. The Yen has strengthened around 20% against the dollar since 2002.
USD / YEN
In the opinion of TechRules.com, what are the sectors and shares that may best perform from here until the end of the year?
According to our estimates, the strongest sectors are Energy, Automobiles, Telecommunications and Utilities. The opposite end is made up of banks, media and pharmaceuticals.
As for the possible best performing shares out of the whole, we list which are our principal bets within the Nikkei 225.
