Wednesday, January 02, 2013

A Weakening Japanese Yen raises Some Boats

The election of Shinzo Abe as the Japanese Prime Minister means that Japan will embark on expansionary policies with the intended purpose of generating growth by weakening its currency. A weaker Japanese Yen ("JPY") will also inject inflation into a recession-bound economy.

The immediate impact of these policies will be cheaper exports; thus benefiting exporters. The positive impact will eventually work through the economy, leading to a pick-up in growth.

We can see from Chart 1 that JPY index has been moving within a downward channel that dated back to October 2011. Over the past 3 months, JPY dropped from the upper boundary of the channel at 129 to the lower boundary at 115. After this sharp fall, JPY may enjoy a technical rebound which could hit the horizontal resistance at 120 or even 123. I doubt JPY will revisit the upper boundary given the mandate secured by the Prime Minister Shinzo Abe. To get another look at the trend for JPY, check out Yahoo Finance's chart for the cross rate for USD-JPY for the past 5 years (here) or the cross rate for MYR-JPY for the same period (here).

Chart 1: JPY Index's weekly chart as at December 31, 2012 (Source: Stockcharts)

We can also see that Nikkei 225 has broken above its downtrend line at 9850 as well as its strong horizontal line at 10250 last week. After a short pause, Nikkei 225 may test its next horizontal line at 11000.

Chart 2: Nikkei 225's weekly chart as at December 31, 2012 (Source: Stockcharts)

For Malaysian investors, the best way to benefit from a weakening yen is to positioning ourselves in companies that import from Japan, such as car-makers Tan Chong & UMW.


JT said...

agree. but umw seems at high level. tchong consolidating

Mat Cendana said...

BSKL's index went up too sharply towards the end of last Monday's session. It's like some party wanted the index to end 2012 at that level, for reasons known only to them. Inevitably, there seems to be a hangover today with many of those index-linked counters losing most of Monday's gains.

On a positive note, the US Congress has finally voted to prevent the country from going over the much talked about fiscal cliff. Don't know whether this will affect BSKL though. I'm putting on a trader's/speculator's hat and am trying to profit from the US market. The cheapest way seems to be through the locally issued call warrants of Facebook, Apple, Google etc. I'm betting on Apple-C6 at 0.055 (Ex. Price of US$620, expiry April 2013) - if it moves up in the next few weeks, my portfolio will be off to a good start in 2013. If it doesn't... well, that's how it goes with trading in the stock market.

For BSKL counters, I feel the prices are currently on the high side. There might be some correction ahead. Then there's the general elections factor - if the quality counters were to come down to a certain level as a result of this, that might be a good opportunity to buy. But a rebound will depend on how the BN performs, of course. This is another risk we'll have to evaluate.