25 November 2018

Topix continued to test its key psychological support line of ¥1600 level, but still trading above that important 200 weeks moving average line, now at Y1570 level. The Japanese stock market had grabbed much international attention last week but for all the wrong reasons as Nissan's (7201) chairman, Carlos Ghosn was fired for alleged embezzlement of funds from the car giant. 

Ghosn's exit had once again raised questions about Japan's corporate governance standards. The latest revelations had also highlighted the growing management division between Nissan and its equity partner Renault which some believe was the real reason behind the whistle-blowing. For now, however, all sides including Mitsubishi Motors (7211) have sounded their support for continuation of the three-way alliance.

Moving on, we are now a week away from the crucial G20 summit in Argentina where leaders from the US and China are set to meet in order to resolve the trade dispute ahead of January deadline when US tariffs on Chinese imports are due to rise from 10% to 25%. We suspect there is still a possibility that Trump will defy negative expectations and get enough concessions from the Chinese to possibly delay the tariff hikes for later this year, giving both sides more time to negotiate. 

With one US trade advisors and a staunch China hawk, Peter Navarro not in the list of US delegates attending the G20 conference, there are hopes that the US president will be looking to positively surprise capital markets as US stocks are heading towards negative territory for the year. We thus think this could lead to a short and sharp relief rally before markets focus once again on the generally slowing global economic activity and weaker earnings trends which are being affected beyond just issues regarding trade. We thus think it would be prudent to pare short positions in Japan's capital goods and general China plays for now until the outcome of the G20 summit becomes clear.