Saturday, 28 December 2013

China verses Japan - in more ways than one

Whilst the broader global equity indexes have rallied across 2013, the one nation that remains seemingly stuck is the mighty China. The Shanghai Comp' is -7% on the year, whilst its neighbour Japan, has seen the Nikkei ramp 55%. 2014 looks set to be an...'interesting' year.

Japan, monthly, 20yr

China, monthly, 20yr


First, its important to keep in mind that the Shanghai Comp' was in the 300s in 1994, whilst the Nikkei was in the 20000s. On a two decade overview, we have China up by a factor of 7, whilst Japan is actually some 20% lower. 

So...why the stark contrast in market performance?

Without question, the primary issue is one of demographics. Whilst the Chinese population is still a youthful one..and growing, Japan is aging, and in decline.

*Just today, China has amended its one child policy...see BBC NEWS

Of course, in the last two decades, QE has been a prop to fight the underlying deflationary pressures in Japan, and with the 'Abenomics' hyper-print policy, the Nikkei has soared in 2013. Printing huge amounts of new currency sure won't solve the population problems, and for the insular nation of Japan, it is now too late to reverse the trend.

Index outlook for early 2014

Whilst the Shanghai Comp' looks set to struggle - as based on the past few months of price action, the Nikkei looks very bullish. A year end close in the 16000s will decisively break a TWO decade down trend/channel, and opens up 17000 within 1-3 months. 18k looks viable by early summer, but 20k looks overly difficult until 2015.

Fighting over rocks in 2014?

see: Senkaku islands @ WIKI

I'm reluctant to call it a prediction, but as many recognise, there are increasing socio-political tensions in Asia, most especially between China and Japan. 2013 has seen China enact an air flight zone, whilst Japan is naturally claiming to defend its territory.

One thing is for sure, for the entirety of 2014, it will be a good idea to keep one eye on those rocks between China and Japan. The world equity markets are arguably looking for an excuse for a sharp (if brief) sell down, a little 'skirmish' - or even just the serious threat of one, would be one valid excuse.

Goodnight from London

next main post, late Saturday, on the US weekly indexes