At the start of 2021, global stock markets such as the Dow Industrial Average, the German Equity Index (DAX), the Korea Composite Stock Price Index (KOSPI), are all at record highs. Japan's Nikkei 225 also closed at 28,139 yen on January 8, up 648.90 yen, or 2.4 percent, from the previous day, and recovered to the 28,000 yen level for the first time in 30 years. On January 11, MIRUPLUS asked Atsushi Kawakami, former Chief Investment Officer (CIO) in Japan at Invesco Asset Management, about whether the U.S. stock market will continue to be strong and how the other market prices such as bonds, foreign exchange, gold and crude oil will continue? (Photo provided by Mr. Kawakami)
MIRUPLUS (MP)
The Dow Industrial Average and other stock prices in various countries are hitting record highs, but what is your impression of the current state of U.S. stock prices? Judging from the current stock price, can you think of it as a break from the damage to the economy caused by the spread of the new coronavirus pandemic?
Kawakami
The Dow Jones industrial average is not bought due to the momentum of corporate performance. In other words, it is not bought reflecting the growth in business performance. With Democrats securing the last two seats in Georgia State, there is reassurance for the new Biden administration, which has won both houses of Congress. In addition to expectations that the new administration will advance fiscal expansion, the view that monetary easing policy will continue is underpinning the overall market.
MIRU-NY STOCKS INFORMATION(iru-miru.com)
MP
Will the so-called blue-wave phenomenon, in which the new President is elected from the Democratic Party and controls the majority of both houses of Congress, provide a tailwind for the rise in stock prices?
Kawakami
The elimination of the torsion (at the U.S. Diet) will lead to a sense of security, but Democrats have been more proactive in blocking cities than Republicans in order to stopping the spread of COVID-19. If this happens, the damage to conventional industries such as aviation and other transportation industries will not be measured, and there are concerns that advanced industries such as IT (Information Technology) alone will not be able to pull the entire U.S. economy. When I think about the January-March, I doubt whether the stock price is going well enough to factor it into the market. I don't think the effects of the corona vaccine will come out by March. As [adventure investor] Jim Rogers says, the U.S. stock market may be close to the height of the bubble. Adjustments in the market may happen anytime. I expect adjustments to be made between this coming January and March. After that, U.S. stock prices will recover in the V-shape after the middle of this year.
MP
U.S. 10-year bond yields are now above the 1 percent level for the first time in about 10 months, as the increase in government bonds has been disgusting. How do you analyze the impact of rising interest rates on the stock markets?
Kawakami
The 1% is considered to be at an appropriate level. 0.5% is too low, and adjustments are made accordingly. Short-term interest rates and three-month or two-year bonds yield have barely moved. I feel unnatural when I look at long-term and short-term interest rate movements. If we view it as a supply-demand problem for some investors, the impact of the increase in government bonds will not be significant.
MIRU-FOREIGN EXCHANGE YEN-DOLLAR(TTS) INFORMATION
MP
In the foreign exchange markets, there seems to be a growing view that the rise in government bonds will be a risk of a downgrade of U.S. Treasuries due to the large-scale fiscal moves by the new Biden administration, and that a further decline in the U.S. dollar will proceed. What is the outlook for the exchange rate?
Kawakami
There are signs that the U.S. external net debt, which is worth $13 trillion, will expand further. I think the dollar will continue to be sold due to deterioration in fiscal balance. However, as in March 2020, the economy as a whole was shrinking due to restrictions on going out due to the corona pandemic, and there was a shortage of dollars, mainly in emerging countries, and the dollar was being bought back. The coronal calamity may not end, but it may also play out a short-term dollar high.
MP
We ask for about commodity markets. Monetary easing policy and fiscal spending continued by major countries are positive for the gold market. Gold futures rose to the $2,000 per troy ounce last year on the New York futures market. Can you continue to think that the situation is strong?
Kawakami
Gold as an alternative asset to the U.S. dollar will be noted. The battle for currency supremacy with Russia, China may surface in addition to gold. In particular, it is necessary to look at developments in China. The introduction of China’s Digital Currency Electric Payment (DCEP) and other issues are moving with political speculation. China has made it the default line to reduce foreign exchange reserves denominated in dollars and increase gold reserves. In that sense, I read that the New York gold price is aiming for $3,000 by the end of the year.
MURU-NY CRUDE(WTI) INFORMATION
MP
What is the outlook for crude oil prices?
Kawakami
WTI futures price are currently above $50 per barrel in the New York market, partly due to the earlier production cut by OPEC＋, which consists of the Organization of the Petroleum Exporting Countries (OPEC) and non-member countries such as Russia. According to data from the U.S. Energy Information Administration (EIA), crude oil is somewhat insufficient supply and current levels will be maintained for the time being. The break-even point for shale oil seems to be $45, but it expects an increase in oil rigs in the future, so it will be difficult to maintain high prices in the long term. Even if the coronal pandemic ends, it is difficult to believe that the economic standard will return to 2019 levels, and given this, the price in the low 40s per barrel is a balanced price.
MP
Finally, what are some important points to note when judging international markets?
Kawakami
First of all, this is the point whether leading U.S. companies can maintain its dynamism. I would like to see if the momentum of high-tech stocks will continue as it is. The other is the trend of dollar as the base currency. After finishing the World War Ⅱ, the international community managed to maintain frameworks such as the Bretton Woods system. However, I feel that the dollar is now entering a transitional period that will replace the next one. The liberalism of the United States, which has leading the world, and the capitalism economy may be being questioned. In 2021, we should pay attention to how much the value of the dollar fluctuates, and should watch at the dollar and gold as a set.
(IRuniverse)
