Anthony Peters
SwissInvest strategist
In the forecast I wrote at the end of last year, I suggested that geopolitics might well make an entrance onto the market scene again in 2014 and wondered at the same time whether the current crop of traders and investors knew how to price it. Of course, being the grumpy old git that I am, I assumed that they didn’t and don’t.
Although the headlines today will be filled with news about President Francois “do-you-think-you-saurus” Hollande and his initiatives on both the economic and on other fronts, I remain more concerned about matters affecting Japan. As a keen historian, I have already latched onto this year as being the centenary of the outbreak of World War I but it is in fact also the seventy-fifth anniversary of the beginning of World War II in 1939.
We Europeans tend to see it as a European event in which Fascism and Democracy clashed and from which the good of Democracy emerged victorious. However, it was a world war which was fought just as fiercely, if not more so, on many fronts in East and South East Asia. The conflict in the East was driven by Japanese expansionism and that in turn was powered by a pathological desire to secure the supply of raw materials to the growing industrial economy.
Today saw the Nikkei take a terrible tumble of just under 500 points or just over 3% on the back of some staggeringly poor current account figures. From an October deficit of ¥127bn, the November deficit was forecast to rise to ¥369bn. In the event, it reported at an eye-watering ¥592bn. That number is beyond being funny for what not so long ago prided itself as being an export focused economy. The pressure is on and coming from a continuous rise in the very same raw materials which prompted the disastrous expansion policy of the late 1930s.
It is, again to repeat recent comments, not entirely by chance that Prime Minister Shinzo Abe has been touring the African continent. He is the first Japanese leader to do so but has been racing around to see if he can geta clad foot in the door before the Chinese have wrapped up all the commodity supplies from the dark continent and slammed it shut. As if Japan did not have enough problems at home with respect to its demographic time-bomb, finding itself shut out from a direct, cheap and consistent supply of raw materials would only vitiate the situation, going forward.
While the rest of the world is waiting for Abe to launch his third arrow, he himself seems to appreciate that all this promised structural reform needs fertile ground to prosper on and if stifled by the ever growing Chinese export economy, all efforts will be in vain.
It would be fatuous to judge Japan and its prospects not quite half-way through January but to lose 5.33% of the value of the key stock index this early in the year is not a lot of fun. That said, it must of course be added that Dec 31st is just a normal quarter end in Tokyo, that the financial year end is not until March 31st and that therefore the dynamics in the Japanese markets are different from those in the rest of the world. Nevertheless, I will be keeping a very close eye on and ear open to the Sino-Japanese relationship over the course of the coming year. There is a competition opening up and Abe’s recent and unexpected visit to the controversial Yasukuni Shrine was surely not entirely an accident.
Motoring back
Meanwhile, on a happier note, car nuts are facing West and the North American International Auto Show in Detroit. After a decade of decline and restructuring, America is once again proud of its motor industry and the worst of all its makers, GM, has come screaming back through the pack in taking the prize for best passenger car and best light truck. I’m not sure I’m convinced by the new Corvette Stingray which looks to be more as if it were inspired by the Lightening McQueen character from Pixar’ “Cars” movie than by the dominant European competition but I shall give it the benefit of the doubt.
One thing that Detroit is reminding us of is that the cash is there and the desire to own luxury product is too. The money remains in the top bracket and successful companies need to have classy brands in order to subsidize the lack-lustre and unprofitable volume business. Think VW-Audi, think BMW and think Mercedes. Then look over your shoulder and think Renault, Peugeot and Citroen. Oops!
Shinzo Abe might have his work cut out but then so has Francois Hollande. I wonder what he’ll have to say today. One thing I do know for certain is that he won’t be showing up to address to the nation on the back of a chauffeured motor scooter.