The Week In Hindsight – 09 June 2014

The NIKKEI opened higher this week as final GDP figures released overnight saw Q1 growth revised upwards to 1.6% annualised VS the anticipated 1.4%. The Q1 growth figures emerged at the same time as data which indicated that consumer confidence also experienced an uptick during the month of May.

While the GDP figures relate to the pre consumption tax increase Q1, the gain in consumer confidence bodes well for economic prospects following eight weeks of concern over growth momentum.

The week ahead sees a raft of economic numbers scheduled for release, with the headline act being the BOJ’s monetary policy statement on Friday morning. At present, the bank is expected to announce a continuation of its “wait and see” approach, given recent encouraging signs in economic data.

Although a decision by the BOJ to stay the course on monetary policy would mean a long haul journey for investors, the outlook for the Japanese economy and for Japanese equities is nonetheless positive. With growth expected to weather the effects of the consumption tax increase and the BOJ vigilant to a downturn in economic conditions; we see no immediate threat to the performance of Japanese indices.

On a slightly different note, speculation surrounding the anticipated asset allocation shift by Japan’s largest pension fund increased over the past week, as analysts from several major banks released notes of their expectations for the eventual changes.

According to CITI-FX, the fund could begin to scale back its exposure to JGB’s (Japanese Government Bonds) as early as this winter in favour of an increased allocation to “risk assets”. Current estimates, derived from recent announcements made by the fund’s Chairman, see large allocations to both domestic and foreign equities as well as overseas investment grade fixed income.

While it is unlikely that the fund will announce its intentions ahead of the time at which it begins to adapt its portfolio, the news is ultimately positive and could be expected to help support the NIKKEI at, or above, its current levels. For a brief overview of the background behind the changes, see our previous note from April 2014 here.

“If even a small portion of the fund’s $1.26 trillion of assets were transferred into local equities, the effects could potentially be significant” – Stockatonia Private Investor Research, April 2014

NIKKEI 225 Over the Week