A quick rundown of our core stock market strategy
This week we look more inwards and briefly touch upon our core themes and our Japan stock market strategy. With markets coming to terms with the reality that inflationary forces are unlikely to be tamed for the foreseeable future and most central banks are likely to further tighten their monetary policy to fight off rising prices, we continue to retain our generally negative stance on growth stocks as we have done since Q4 of last year.
As we go deeper into the second half, we see corporate earnings deteriorating much further as macro headwinds finally start to notably hurt bottom-lines. We thus further increased the list of our short sell picks within our universe during the summer rally, especially within the technology segment which we continue to think look vulnerable as end demand weakens further. Another key sector which we have been very negative on is shipping where related stock prices have remained fairly elevated despite the plunging freight rates in the spot market.
On the long side, we have maintained our bullish stance on Japan’s banks and insurance names as we continue to believe BOJ will be forced to pivot towards a less accommodative policy stance, forced upon it by the weak yen and rising inflation that have created a self-reinforcing negative feedback loop which in our view can only be disrupted by a shift in monetary policy stance. We also think the recovery in auto output thanks to improving supplies of semiconductors will help many of the deep cyclical segments of the market given Japan stock market’s high gearing to the auto industry.
Another segment which we consider to be a safe haven with good out-performance potential for Japan stock investors is re-opening plays as we see Kishida’s government lifting much of its Covid-related restrictions very soon. The fact that the popularity of the government has been in a free fall as reflected in more recently polls, due mainly to rising living costs will likely help our cause as it leaves Kishida-san with no excuse to retain its entry restrictions for tourists. We think that the weak yen will also play its part in forcing the government to open its borders, allowing what we think will be a huge inflow of holiday makers to Japan following more than two years of covid-related disruptions.
