In today’s briefing:
- A New Era for Japanese Equities? New Highs Without the Valuation Froth of 1989
- The Path to Magnificent Exuberance
- Did the NVIDIA Fueled Rally Exhaust the Bull?
- Financial Considerations Amid the Fed Debate
- Malaysia Economics: Exports Return to Growth After Year-Long Slump
- Thailand Economics: Weak Recovery a Sombre Reflection of Structural Ills
A New Era for Japanese Equities? New Highs Without the Valuation Froth of 1989
- The previous high in Japanese equities occurred during a bubble economy, producing stretched and unjustifiable valuations. Current valuation metrics are not displaying excesses and look relatively cheap versus the US.
- The BoJ is tipped to remove negative interest rates in April. Labour shortages could, however, delay capital spending, potentially prolonging recession, but interest rates will not be rapidly ramped up.
- Foreigners remain upbeat about further corporate reforms enhancing shareholder value. Positive interest rates need not be bearish if better capital allocation in labour-stretched economy produces further improvements in structural profitability.
The Path to Magnificent Exuberance
- We believe the market cycle is in the early phases of an AI-driven boom.
- The current AI-driven frenzy feels more like 1997–1998 than 1999 or 2000 of the dot-com era. The investment thesis is real and valid. Prices are just starting to surge.
- While some early signs of froth are starting to appear, sentiment is inconsistent with excesses seen at major market tops.
Did the NVIDIA Fueled Rally Exhaust the Bull?
- The NVIDIA-inspired rally last week was impressive, but poor market internals are pointing to an exhaustive move.
- The market is in need of a sentiment reset before the next sustainable bull run.
- While we remain long-term bullish on U.S. equities, traders should be cautious about the near-term outlook as the market can pull back at any time.
Financial Considerations Amid the Fed Debate
- The announcement of slowing QT, while still on tap, will be pushed back relative to my earlier expectations
- But the unsettled timing of ceasing QT and reducing the funds rate could still sway asset prices and financial conditions generally
- The fluid debate on the balance sheet and funds rate might also reinforce or dilute the buildup of financial risks
Malaysia Economics: Exports Return to Growth After Year-Long Slump
- Exports finally posted an expansion after close to a year of export shrinking. China remains a question mark but shipments to other markets are on the mend.
- In a further sign of input demand recovering, intermediate imports surged from a year ago, affirming other indicators such as PMI purchasing activity and business confidence.
- Inflation remained at a position where the central bank will likely be satisfied with, but do not expect rate cuts just yet.
Thailand Economics: Weak Recovery a Sombre Reflection of Structural Ills
- Thailand’s economy ended 2023 on a weak note, with the services sector barely holding up even as manufacturing continues to be buffeted by external headwinds.
- Given the low base from 2023, and the likely recovery in exports and tourism, growth in 2024 should improve- but the timing and strength of the rebound remains uncertain.
- Looking beyond 2024, growth prospects will remain uneven unless government policies move beyond short-term populism to tackle underlying challenges to labour productivity.
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