May 19th Weekly Market Update
Godzilla, the latest version of Japan’s King of Monsters, took the top of the box office this past weekend. But Japan’s stock market looks like a giant mutated lizard stomped all over it. One of the worst-performing stock markets in the world this year, Japan’s Nikkei Stock Average is down 13% in yen and 10% measured in dollars. The drop has been enough to push down the forward price-to-earnings ratio for companies in the MSCI Japan index to a rare discount to the U.S. S&P 500 Index.
Yet Japan’s economy is finally growing. First quarter 2014 economic growth in Japan was a strong 5.9% above the prior quarter and 3.0% above the year-ago quarter, according to data released last week. It marked the fifth straight quarter of growth — a streak not exceeded since before the 2008 – 09 global recession. The quarter’s growth was boosted by spending ahead of a consumption tax increase, which could be largely reversed in the second quarter. Nevertheless, the consensus of economists tracked by Bloomberg expects second half gross domestic product (GDP) growth to maintain a 1.5 – 2.0% pace.
Why has growth returned to Japan? Japan has struggled with growth for many years and began to experiment over a decade ago with now widely adopted stimulus measures including a zero interest rate policy and quantitative easing (QE).
For the full article: Japan Going Godzilla