| Economic growth in Japan is
set to slow to a more sustainable pace in coming months
having grown at a phenomenal rate in the first half
of the year. However, the longevity of the recovery
is not in question due to the continuous restructuring
of the economy. Nevertheless, as the market adjusts
to a slowdown scenario, equity out-performance is less
likely. This has prompted SCB's senior economist, Mr
Steve Brice, to downgrade Japanese equities to neutral
from an overweight recommendation.
Quoting Mr Brice - "Let's be clear, this is
not due to increased concerned about the economic
recovery's longevity. We remain optimistic that the
Japanese economy will continue to grow for the foreseeable
future."
The high oil price will weigh on global economic
growth and this could adversely affect Japan's export
sector. And there are few signs that oil prices are
going to fall sharply in the near term given very
tight supply constraints in oil markets at the moment
while demand remains strong. As the northern hemisphere
enters winter, demand is likely to pick up even further
while recent data shows that US stockpiles are not
as high as expected. Given the tense situation in
Nigeria and continued instability in Iraq, most analysts
do not see near term reversal to the trend despite
higher oil production quotas from OPEC and the expectations
that supply will increase further in 2005.
On the more positive front, Japanese companies are
continuing their reform and there will be continued
efficiency gains to boost bottom lines of the companies.
Valuations of companies are attractive from a historical
perspective and would be supportive of the market.
|
Bulls and Bears 
