Change in the Tide【BLOG ENGLISH】

<Life with COVID in Singapore >

I finished my two-week hotel quarantine in Singapore about a week ago, and I am working as usual from my office in Singapore.
Compared to the end of November last year, there are more people on the streets and restaurants are open until 10:30PM, so life is pretty normal.

One thing that I find troublesome is that I have to register my location and time by reading the QR code on my iPhone when I go to any building.
You have to do this when you enter the building, and then again when you enter the individual stores.
However, the good change is that I don’t have to wear a mask at the poolside anymore, which is great for relieving stress.

<Change in the Tide>

I can’t say that things have completely returned to the way they were before.
However, I do believe that the tide has clearly turned in the market in 2021.

First of all, looking at the economic situation, although there was a temporary decline due to COVID19,
in some countries the decline was not as severe as expected, or the period of decline was shorter than expected.

More importantly, economic data shows that the effects of economic measures and the current environment itself are boosting corporate performance.
I also believe that such an atmosphere is emerging in people’s minds.
Therefore, the market is showing new developments with an eye on the post-COVID world.

In addition, it can be said that the unbalanced economic effects of the economic stimulus measures of various countries are beginning to appear as distortions.
The current monetary easing in many countries due to COVID measures has created a glut of money in the world.
People are staying longer time at home. Students are taking online classes at home, and part-time jobs have become scarce.
As a result of the cash transfer, some people are taking the opportunity to invest in stocks instead of just staying at home doing nothing.

These movements have caused the stock markets in many countries to rise, and we are now in a situation where we may be in a bubble economy.
Of course, since the economy is booming, there are companies that are performing well.

The stock prices of such companies are rising due to their fair evaluation. On the other hand, there are also stocks that are being bought without performance.

<Change in the Tide-World Financial Market Situation>

A few days ago, the long-term interest rate in the U.S. temporarily hit 1.6%.
Many of the reports I read in early 2021 predicted an increase of about 1.3% by the end of 2021.
I read those reports myself and was looking at 1.3% as a benchmark.
I predict the stock market would be affected when the rate reached 1.5%.

After all, it actually reached 1.6%, which is above the dividend yield of the SP500.
We saw significant declines and volatility in the global stock markets last weekend.

Exceeding the dividend yield of stocks means that it is better to earn interest than to receive dividends from stocks.

If this happens, people will sell stocks and buy bonds.
For individual investors, this may not seem like a big difference, but institutional investors check such subtleties and take actions.
As a result, they will sell ahead or sell systematically.

<Change in the Tide-Japanese Financial Market Situation>

This is nothing special in the stock market, but I am afraid that this move will affect the Japanese financial market.
This is because I believe that the Japanese market is currently an artificially created market.

Since the Bank of Japan’s (BOJ) decision to implement a policy of inter-dimensional monetary easing,
the BOJ has come to hold about half of the government bonds issued in Japan and is said to be the biggest buyer in the Japanese stock market.

BOJ’s purchases keep the price of JGBs low and interest rates low, which in turn keeps the price of stocks high.

However, the BOJ’s ability to buy government bonds and stocks is almost at its limit. In such a situation,
if the Japanese stock market were to fall, the BOJ would suffer a valuation loss.

There is also a possibility of selling in anticipation of this.
It is not surprising that some investors would analyze the market situation and start to sell Japanese government bonds or stocks.

In this case, BOJ does not have the power to support such a move,
and the market may fall sharply if further selling takes place.

For these reasons, I think it is time to think about escaping from the Japanese yen.

Basically, I think the first strategy is to transfer funds to overseas banks in currencies other than the Japanese yen,
but never to borrow money in the Japanese yen at variable interest rates.

Furthermore, if you are professional, you can sell Japanese stocks and government bonds in futures.

Although it is difficult for us to meet and talk with each other easily,
I would like to provide you with information by using various communication tools online.
Please take care of yourself and stay safe!

Masahiko KUMADA / MAC

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