Thursday, December 07, 2006


Japan's Fortunes

sopskysalat said...
hello, although nikkei has underperformed the market as a whole against the asia equity, going forward, there is much interest rate risk. you are still confident of the nikkei 225 going to hit new high?

Other Asian bourses have rallied ahead of the Nikkei and Topix. The uncertainty has more to do with the US dollar-yen relationship, the oil price uncertainty, the domestic economy's uncertainty, and the direction of interest rates by Bank of Japan. Its also not so much that Japan is a hard sell but rather the other Asian bourses are an easier sell.

Corporate earnings - Capex increased 11.9% in 3Q2006 which is still decent. Meanwhile, profit growth remained strong at 15.5%, for the 17th-straight quarter of gains. Its the 17th straight quarter, let that sink in first. Mind you, the last 4 quarters had been clouded with much higher oil prices. Since oil prices have started to dip appreciably since August, corporate profits' growth should continue for the next few quarters at least. What is even more important is that margins will be enhanced with weaker oil prices.

Domestic Economy - Wages were unchanged in October and have been disappointing, increasing less than US$100 this year. However, this next phase of rally for the Nikkei will not be led by domestic economy, so its not a big issue.


US Dollar/Yen - The uncertainty overhanging both currencies are now largely removed with US dollar's recent correction. The yen, while at a stronger level, is now much more acceptable as there is a large uncertainty removed.

Interest Rates - This is the biggest stumbling block for investors, that BOJ will be raising rates, of course they will raise rates, when you at at zero and 0.5%, where else can you go?? In fact, the rise is a strong indication of the underlying strength of the economy and the currency. Both important factors.

The number of huge private equity firms setting up shop in Asia and Japan is a big leading indicator to more market action. All said, we should be looking at 19,000 sometime in 2007. All hail the new leader.

7 comments:

simon_alibaba said...

i have read many financial commentaries & not many talk sense but you are diff! this what i call the creame de la creame.

how bad do you think the USD can go down to, any cause for concern?

Salvatore_Dali said...

i think the usd is in for a long drawn weakness but as the reserve currency it will not collapse, it will take a 3%-5% hit once a year and adjust... i see the ringgit reaching 3.3 by mid 2007 and hopefully 3.1 by 1q2008. Americans will get used to the dollar weakness, its the only way to sustain their consumption.

sopskysalat said...

thank you for a very insightful posting. we are betting on something that has a low base as compare to others that have higher risk.

genting won! financially, it is a lousy bet on the IR project given the huge investment needed. yeah, it also shows that the singapore government selection criteria is transparent and objective in nature. they are no longer giving it to the highest bidder, local-linked corporation but one that met what it is looking for. congrats to Genting! one way or the other, its share price will see very good movement with houses coming in to support and paint nice outlook and the many intangibles it will get from the winning.

lastly, salvatore, i have read so many of your posting. i remember you put up a small intro of yourself last time but you have taken off from your blog. we, as your blog followers, would really love to read a little background of how you have come so far to be able to see the big picture out there.

thanks!

Salvatore_Dali said...

sops,

i don't use my name cos i can attack many companies and heads without recriminations, i still need to work la... actually if you have any questions, i will try to answer as best as plausible..
background - biz grad, 6 years as top sales of Asian shares, cbs and warrants in OZ and NZ, fund management 4 years, equity research head 6 years ... worked in sydney, hk, singapore, kl, tokyo ... aim is to join a good hedge fund ...

swifz said...

Hi, I just finished the book "Fiasco: The Inside Story of a Wall Street Trader". The last chapter touches about how Japanese companies uses derivatives to create profit out of nothing. Can you please comment on that?

sopskysalat said...

dali, thank you for the brief intro of yourself. well, no worry, i am not tracking you down. hahah... i am amazed by your insight. thus curious about your bkground though in the past, you did mention abit in the blog but has taken it down since.

sopskysalat said...

also, nice call on nikkei. it has since pop up few hundreds points and is marching towards the 17000 soon. i am finding an entry to long it. thanks!