Are Japanese Equities Headed for a Double-Dip? Citi's Strategists Analyze Recent Selloff and Market Instability
On September 4, Japanese equities saw a selloff that continued the market's reaction from an early August decline and subsequent recovery. Citi's strategists believe this selloff may be due to corrections in several inconsistencies, pointing to factors that could indicate continued instability in the near term.
One key factor is the anticipation of a significant rate cut by the Federal Reserve, with expectations of a soft landing for the U.S. and global economies. Additionally, the yen has not appreciated against the U.S. dollar as much as expected, despite declines in U.S. long-term interest rates. Stock selection in Japan also does not align with the rebound in Japanese equity index levels.
Concerns over the U.S. economy were raised following the Manufacturing ISM Report for August, which showed a slight increase in the PMI but a deterioration in the new orders-inventories balance. This suggests a potential downturn in the U.S. economy, adding to the uncertainty in the global market.
Citi noted that the Japanese stock market seems to be following a pattern of a double-dip, characterized by a steep correction followed by a short-term rebound. The risk of Japanese equities falling below their August 5 floor appears limited, but the effectiveness of the beta factor has not been consistent with index levels since mid-August.
In conclusion, there is a possibility of a double-dip scenario in the Japanese equity market, with potential implications for global economies. It is important for investors to stay informed and prepared for market fluctuations to protect their investments and financial well-being.