The Week In Hindsight, 14 December 2013

December continued to prove a fruitful period for Japanese equities as the NIKKEI shrugged off Japan’s dispute with its neighbour China amidst barrage of statements supporting further upside in Asian equities throughout 2014.

Barclay’s Capital assigned a 22,000 price target to Japan’s NIKKEI while a Bloomberg survey shows emerging markets analysts forecasting an average increase of 17% in the Shanghai Composite Index throughout 2014.

Goldman Sachs is also bullish when it comes to Chinese equities; it sees the wave of anticipated privatisations in China having the potential to reverse the under performance in the market throughout 2013.

Back to Japan and in addition to bullish price targets, a panel of government advisers announced their recommendations relating to the future strategy of the GPIF this week. The panel recommended that the world’s largest pension manager be granted permission to reduce its reliance upon JGB’s (Japanese Government Bonds) in order to further diversify its asset base.

A greater allocation to equities and international fixed income assets is deemed critical to funding the world’s oldest population through retirement in the event that policy makers are successful in meeting their 2% inflation target. Further recommendations include more investment in talented asset management teams.

In another positive move, senior managers at some of Japan’s largest corporations were reported to have responded positively to calls by the Prime Minister Shinzo Abe for them to boost wages ahead of scheduled tax increases next April.

Such moves would benefit Japanese equities as it higher taxes have the potential to negatively impact upon consumer spending and growth; key concerns for both policy makers and economists.

INDIAN CPI REACHES AN ALL TIME HIGH, TOPS 11% – RATE RISE IMMINENT; FURTHER SLOWDOWN IN GROWTH AHEAD

Indian inflation reached a record high this week despite a sustained slowdown in production and growth over recent quarters. Consensus estimates show expectations that a 25-50 basis point rate increase by the central bank is imminent.

The move in both rates and inflation does have the potential to impact upon an already slowing economy as increases to the cost of funding are likely to place further strain upon the government’s own balance sheet while Indian stocks, close to record highs at present, risk straying into expensive territory should growth concerns increase further.

NIKKEI 225

NIFTY 50 (India)