Nikkei stock average rate continuing rise. Photo: The Yomiuri Shimbun
Nikkei stock average rate continuing rise. Photo: The Yomiuri Shimbun

Traditionally, the stock markets were subject to the so-called seasonal effect, under which at certain times of the year, month or even week, share prices fell or grew. For example, significant negative returns would normally occur on Mondays as most of the negative economic news comes at the beginning of the week, while more positive trends may be observed on Thursdays. The period between July and the North American Labor Day (first Monday of September), in turn, was considered one the most dangerous for investors as many were away on vacation and, as a result, volatility was higher because liquidity was lower than it otherwise would have been.

Among the reasons for seasonal variations, we could highlight changes in climate, investor perceptions, tax-loss selling and information hypotheses. According to research by Kenya’s Dedan Kimathi University of Technology, customs and traditions can also affect economic variables. For instance, sales of gold increase during marriage seasons. This seasonality helped investors to formulate their strategies and timing.

However, the flush times have come to an end with Donald Trump in the White House and Boris Johnson at 10 Downing Street.

Apparently, the two leaders came to a conclusion that the existence of seasonality in stock returns violates an important hypothesis in finance, that is, the efficient market hypothesis. As a result, this summer has been marked by negative trends in emerging markets, something that didn’t happen in the US, where the market and its breadth were strong in April, May, June and beyond.

When the US economy is doing well and the dollar is going up, it puts pressure on emerging markets. According to Mark Matthews, Bank Julius Baer’s managing director and head of Asia research, if we look back in history, it is usually times like this when you have to be a buyer of both Asian bonds and stocks. The reason is quite simple – they are very cheap now thanks to devaluation.

Even BlackRock, the world’s largest investment management company, included Asia in its overseas expansion strategy. In particular, chairman and chief executive officer Larry Fink wrote in a 2018 letter to shareholders that increasing the company’s presence and penetration in high-growth markets, particularly in Asia and especially in China, was “one of the most critical priorities for BlackRock today and into the future.”

This shows that Asia continues to grow, offering a better opportunity for investors than developed markets. In that context, it is worth mentioning that at the end of 2018, the Hong Kong stock exchange reclaimed its crown as the No 1 IPO (initial public offering) market in the world, beating the previous year’s winner New York, as listing reforms led to the highest fundraising in eight years, with 125 companies raising US$36.5 billion.

Besides that, American hedge-fund manager Michael Burry disclosed having several active investments in small and medium-sized Japanese companies, among which we could find:

Kanamoto – firm responsible for the development of Japan’s construction equipment rental business. To be more precise, it leases construction machinery and tools. According to a company report, the Kanamoto Group is focused on establishing 29 new branches of its own and increasing the number of alliance group bases by 157 locations through mergers and acquisitions and business tie-ups this year.

Tosei – a real-estate company. Consolidated revenue for the six months ended May 31, 2019, totaled 34,452 million yen (US$321 million, up 5.9% year on year), operating profit was 7,964 million yen (up 15.6%), profit before tax was 7,634 million yen (up 17.2%), and profit for the period was 5,239 million yen (up 17.7%).

Tazmo – mainly manufactures equipment related to liquid crystal displays (LCDs) and semiconductors. The company’s main products include the spin coater in the color filter manufacturing process and cluster-type spin coater and developer used in semiconductor manufacturing. Tazmo also manufactures thermopile infrared sensors as well as ultra-precision molding dies, according to Bloomberg.

The rest of the companies are Yotai Refractories, Sansei Technologies, Murakami, Nippon Pillar Packing and Altech.

Nevertheless, one should not forget that Asian markets depend directly on how trade talks go. In the case of positive returns, we will see Asian shares rising, as happened last Friday, when Japan’s benchmark Nikkei 225 increased 0.79, Australia’s S&P/ASX 200 improved 0.37%, South Korea’s Kospi gained 0,74%, and Hong Kong’s Hang Seng rose 0.69%.

Igor Kuchma

Igor Kuchma is a financial adviser who is passionate about economy and the capital markets in general. He has experience working with Russian, Spanish and American financial institutions. He helped to compile a course for the Series 7 exam, while some companies he has prepared investment portfolios and macro and microeconomic models in Excel, and has studied trends and historical data.

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