The Japanese stock market has dropped over 7% overnight sparking a wide-ranging sell-off across Europe.
It's not surprising really because the recent bubble in European indices had no relationship with the underlying asset and fundamental value of the companies behind them.
Trading in the last couple of years has been led purely by market sentiment and technical trading - in other words greed and fear. As stock markets moved higher they fuelled a greedy rush by speculative traders to ride the rise. Short sellers dared not enter the market.
The bubble in stock markets must not be confused with economies and recovery.
Only this week the International Monetary Fund said that despite recent improvements in some indicators of economic growth, the economy is still a long way from a strong and sustainable recovery.
“Recent data suggest some improvement in economic and financial conditions, which is encouraging. But the United Kingdom has a long way to go. Investment has been persistently weak and unemployment, especially among young people, is high,” said David Lipton, the IMF’s Deputy Managing Director.
Last night's sell-off in Japan was sparked by weak data coming out of China and the United States.
Now the fact that China in cooling is not a surprise but Japan, which has been in long-term recession, was said to be on the verge of growth.
Personally I believe the story. Japan was once an industrial powerhouse, exporting its goods around the world. For many years this tiny nation supplied much of the world; mainly with motor cars and electrical goods.
It may seem contradictory but whilst a 7% sell-off looks like the last hurrah - will the last one out please turn off the lights - this is quite possibly the stimulus Japan needed to spark a revival.
In trading terms it is often said that a bear market becomes a bull when the last bear has left. Put another way, when a sell-off is complete and short sellers have nothing left to sell.
Last night's sell-off in Japan will have probably wiped out the last of the long-term bears. There will be volatility for a while, maybe a couple of weeks.
The timing is perfect for Japan. As European and US market bubbles burst and investors and traders either take their profits and/or become short sellers, investors will not be looking elsewhere for strong returns.
I expect to see an invigorated Japan within the next 1-3 years with an emphasis on export again.
The devaluation of the Yen - the Japanese currency, which has dropped over 30% since September 2012, has hurt many of its Asian neighbours - Countries such as China, Taiwan, Thailand and Korea, whose own economies have enjoyed good growth but are now seen to be slowing and will be unable to compete with Japan's new found competitiveness in the export markets.
According to the Japanese Iron and Steel Federation, steel export from Japan has increased in March 2013 by 12.2% compared to the previous month. That is a healthy 4.7% year-on-year export growth for the fifth consecutive month.
Knock-on effect
What has all the above got to do with the landscape and horticulture market in the UK?
Well one thing that Japan has been good at in the past is selling motor cars to the rest of the world.
Mazda Suzuki, Datsun, Toyota are names I remember strongly from my youth.
To underline the prediction that Japan is to once again to become an industrial powerhouse one only has to look at the recent return to strong growth of Toyota.
The weakened Yen is bringing out buyers in the west. The New York Times reported that brisk sales in North America have seen profits in Toyota soar to their highest level in five years sparking hope that Toyota is starting the exit the biggest slump in its 75 year history.
So here's the rub. Car exports from the United Kingdom, the United States and China will slow even further. European car sales have see 18 months of consecutive falls.
European car sales only stopped falling in April this year but I don't see this as sustainable in the short-term.
Companies such as Jaguar Landrover have seen massive growth, especially in China but I now see buyers switching to Japanese car manufacturers and making the most of the cheaper prices.
The knock-on effect will almost certainly result in lay-offs at British and European car plants.
Consumer spending, something that's almost certainly helped the UK and the rest of Europe to land more softly than it did in the late 80's, will cool significantly.
As landscapers and gardeners we can also expect there to be a major impact on garden spending.
This week's apparent booming Chelsea was purely fanciful smoke and mirrors
....and many people thought we were out of the woods?
"Last night's sell-off in Japan will have probably wiped out the last of the long-term bears. There will be volatility for a while, maybe a couple of weeks.
"The timing is perfect for Japan. As European and US market bubbles burst and investors and traders either take their profits and/or become short sellers, investors will not be looking elsewhere for strong returns.
"I expect to see an invigorated Japan within the next 1-3 years with an emphasis on export again."
http://www.ft.com/intl/cms/s/0/73da2e5c-d16c-11e2-a3ea-00144feab7de.html#axzz2VnoC8YD1
It looks very much like the start of something good in Japan
Posted by: Phil Voice | Jun 10, 2013 at 10:08 AM