The Week In Hindsight, 02 January 2014

The NIKKEI said goodbye to 2013 after its largest annual gain for four decades (57%) this week, ahead of what will be a crucial period for both the Prime Minister, Shinzo Abe, and for Japan as a whole.

NIKKEI THROUGHOUT 2013

With investor confidence returned, the Prime Minister’s policies to turn the economy have worked so far however; the biggest test is still to come. In April, the Japanese government is due to raise their equivalent of VAT tax from 5% to 8%; the first major tax rise for nearly a generation.

The gamble is that this could dampen the consumer’s appetite for spending and as a result, hinder economic growth. This is why more stimulus is expected during 2014; to keep the wheels of the financial system greased and easy. Abe hopes that more stimulus alongside pressure upon corporates to raise wages will be enough to offset the burden of increased taxes; if he is right then the retail investor and the rest of the world will be able to look forward to another good year for Japanese equities.

Should Abe be wrong, then this time will prove no different to the last time a new Prime Minister entered government off the back of promises to end deflation and turn the economy.

HIDDEN VALUE? ONLY HALF OF 1,700 JAPANESE STOCKS ARE COVERED BY MORE THAN TWO ANALYSTS!

On a slightly different note; JP Morgan reported earlier in December that only half of the 1,700 companies listed in Japan are covered by more than two sell side analysts. This could be indicative of hidden value being present in Japanese markets.

NIKKEI WEEKLY CHART 1985 – 2013 WITH DOW JONES OVERLAY (IN RED)