Upside in Japan & Crypto Giants

June 13, 2023

More upside in Japan?

Jason Gibbons

Plagued by aging demographics and 30+ years of deflation, Japanese equity markets have been troubled to find new highs since 1989. Abenomics’ Three Arrows restarted equity market growth in 2013 and we’ve seen equity market strength continue in a post COVID lockdown rally, making Japan one of the better performing markets YTD. Japan is situated in a unique position for near term equity growth – expansion of real growth, controlled but rising inflation and a continued boost in tourism.

Global PMIs are off recent lows but falling, while Japan has continued to rebound. Services have led growth, along with renewed tourism pushing retail sales (+6.4% in Q1 YoY). Industrial production, while anemic, has grown in recent months, on the back of Covid led incentives diverting trade away from China. And despite the recent rally, valuations remain attractive. The Nikkei 225 is still clocking one of the lowest price to book values in developed markets.

Economic growth and a weak Yen pose an inflection point, as inflation has begun to rise. The new hand at the BoJ is unlikely to upset the apple cart, keeping status quo or doing only a one-time rate hike. This would be positive for equities, while limiting JPY appreciation in the short term. The continued weak Yen also aids in keeping financial conditions easy, a tailwind for Japanese markets.

The recent ‘Buffet led stamp of approval’ may have also piqued global investor interest in the region, resulting in strong equity flows into Japan equity markets. A renewed focus on corporate governance and shareholder returns have boosted dividends and buybacks. An opportunity for sustained growth, as an allocation to Asia, they play a unique role in trading with both US and China, as geopolitical spats continue. At current valuations and Yen weakness, Japan still looks like an attractive allocation for Asian equity exposure.

Below chart shows the Nikkei 225 (blue), its Price to Book Ratio (green) and the USDJPY rate (orange) since 2018.

A crackdown on crypto giants

Jack Farrar

Cryptocurrency tokens took a tumble on Monday after it was announced that the Securities and Exchange Commission (SEC) was suing the world’s largest cryptocurrency exchange Binance. Not long after, they announced they were also filing suits against their US competitor, Coinbase. The SEC claims both cryptocurrency exchanges are acting as an exchange, broker and dealer, and clearing agency without registering for such activities with the SEC. But then why after dropping on the announcement of the filings, did major cryptocurrencies like Bitcoin and Ethereum rally?

On Tuesday afternoon the Chair of the SEC, Gary Gensler spoke of certain cryptocurrencies being classed in the SEC’s view as “Crypto Asset Securities” instead of tokens that both Coinbase and Binance claim them to be. However, investors were reassured that the SEC is willing to work with crypto companies to bring crypto into the compliance coverage bracket under the SEC. On the back of this statement major cryptocurrencies such as Bitcoin and Ethereum rallied to be 1-2% above where they were prior to the drop, after investors became more comfortable with cryptos’ future. 

While many might brush this aside as a non-event, we have a different view. As the lawsuits progress against both cryptocurrency exchanges, we are likely to see volatility in not only cryptocurrencies, but also firms that either trade in or support the trading of crypto. This is by no means the burst of the crypto bubble, however, there is likely to be little smooth sailing in the months ahead. But despite this volatility this is the last hurdle before the majority of crypto becomes fully regulated, leaving few headwinds for the industry. Because of this we are maintaining our addition of cryptocurrencies in our commodity allocations and believe the future in this space is brighter than many in traditional finance realize.

Below chart shows Bitcoin (black) and Ethereum (blue) prices on Monday, Tuesday and Wednesday this week.


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Investing internationally carries additional risks such as differences in financial reporting, currency exchange risk, as well as economic and political risk unique to the specific country. This may result in greater share price volatility. Shares, when sold, may be worth more or less than their original cost.
Indices are unmanaged and investors cannot invest directly in an index. Unless otherwise noted, performance of indices do not account for any fees, commissions or other expenses that would be incurred. Returns do not include reinvested dividends.

The Nikkei 225, commonly called the Nikkei, is a price-weighted stock market index for the Tokyo Stock Exchange (TSE). It has been calculated daily by the Nihon Keizai Shimbun (Nikkei) newspaper since 1950 and the components are reviewed once a year.

Cryptocurrency is a digital representation of value that functions as a medium of exchange, a unit of account, or a store of value, but it does not have legal tender status. Cryptocurrencies are sometimes exchanged for U.S. dollars or other currencies around the world, but they are not generally backed or supported by any government or central bank. Their value is completely derived by market forces of supply and demand, and they are more volatile than traditional currencies. Cryptocurrencies are not covered by either FDIC or SIPC insurance. Legislative and regulatory changes or actions at the state, federal, or international level may adversely affect the use, transfer, exchange, and value of cryptocurrency.

Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Use of leveraged commodity-linked derivatives creates an opportunity for increased return but, at the same time, creates the possibility for greater loss.