maandag 17 maart 2014

Japan's stock market is about to crash

If you want ideas which investment to make in the coming months, I would expect a decline in the Japanese stock market.

First, we note that the 10 year Japanese bond yield at 0.6% is pretty competitive against the dividend yields of Japanese stocks at 1.8% (Chart 1). So stocks aren't such good value anymore compared to a year ago when dividend yields were at 2.8% compared to a 10 year treasury yield of 0.7%. Moreover, the P/E ratio of Japanese stocks is currently at 13, which isn't particularly cheap.

Chart 1: Japan: Dividend yield Vs. Treasury Yield


Secondly, I have written extensively about the dire fiscal situation in Japan. Japan has a current account deficit, is printing money to stimulate their economy and more and more of its interest payments on Japanese debt is financed by less tax revenue. Obviously, this won't be bullish for Japanese stocks.

But most importantly, recent numbers on the consumer confidence in Japan, point to a decline in the stock market for the coming months.

Read on here.

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