Tag Archives: economy

How Sustainable Is The Nikkei Rebound? Japan ETFs In Focus

Japan’s key index, the Nikkei, ended in the positive territory for the first time this year on Wednesday. The Nikkei gained 2.9%, or 496.67 points, on Wednesday, after losing nearly 1,800 points from the start of this year through Tuesday. Despite hitting the highest year-end close last year in 18 years, the benchmark was struggling to finish in the green from the start of this year following China-led global growth worries and the oil price slump. Reasons Behind the Rebound Better-than-expected trade data out of China, gains in the U.S. markets and decline in the yen’s value against major currencies emerged as the main reasons behind the rebound. The General Administration of Customs reported that Chinese exports declined 1.4% in December, narrower than a 6.8% drop in November and the markets’ estimate of an 8% decline. Though imports declined for the 14th consecutive month in December, the 7.6% drop in imports compared favorably with November’s plunge of 8.7% and the markets’ forecast of an 11.5% decline. Meanwhile, modest gains in the U.S. markets on Tuesday also boosted the Nikkei. A late rebound in Healthcare and Technology stocks helped the benchmarks to offset a further decline in oil prices. Also, the weaker yen helped the major exporters, including large-cap auto companies and tech companies, to attract investors, as it raised the possibility of an increase in export volumes. Will It Sustain? The sustainability of this rebound in the near term will largely depend on some key factors, including the condition of the Chinese economy, the movement of crude and the health of the Japanese economy. Though better-than-expected Chinese trade data boosted the markets on Wednesday, the decline in both exports and imports indicate that both global and domestic demand continued to remain weak. Meanwhile, the World Bank recently reduced its outlook for Chinese GDP growth in 2016 by 30 percentage points to 6.7%, below last year’s estimated growth rate of 6.9%. The bank also predicted that the economy may grow at a slower pace of 6.5% over the next two years. Separately, given the weak outlook for the Chinese economy, which is one of the leading importers of oil, and an already oversupplied market, there is little hope of a recovery in oil prices. Crude is currently trading at a 12-year low, with every indication of a slide below $30 per barrel. In this scenario, the Japanese economic environment will play a key role in setting the course of the Nikkei in the coming months. Japan opted for several economic stimulus measures last year, which proved to be more effective than the steps taken by China and the eurozone. The economy rebounded strongly in the third quarter to register a GDP growth rate of 1%, as against the second quarter’s contraction of 0.5%. Meanwhile, the impact of recent modifications in the quantitative easing program by the Bank of Japan (BOJ) will also remain in focus. The bank opted for raising the Japanese government bonds’ (JGBs) average maturity from 7-10 years to 7-12 years, and announced that it will allocate 300 billion yen of assets annually in purchasing ETFs that seek to follow the JPX-Nikkei Index 400. Japan ETFs in Focus In this scenario, popular Japan ETFs and funds that closely track the performance of the Nikkei will remain on investors’ radar in the coming months. The Precidian MAXIS Nikkei 225 Index ETF (NYSEARCA: NKY ), which tracks the performance of the Nikkei 225 Index, returned nearly 9.4% last year. Meanwhile, the performance of other popular Japan ETFs will also remain in focus in the near term. In 2015, the iShares MSCI Japan ETF (NYSEARCA: EWJ ), the WisdomTree Japan Hedged Equity ETF (NYSEARCA: DXJ ) and the Deutsche X-trackers MSCI Japan Hedged Equity ETF (NYSEARCA: DBJP ) returned 8.9%, 3.3% and 4.5%, respectively. Original Post

Loeb Still Relevant After 80 Years

By Ted Theodore About 80 years ago, Gerald Loeb wrote a book about investing that has become a classic and is still at or near the top of any list of favorites for many professional investors, including me. The book is The Battle for Investment Survival . Loeb was a broker who became vice chairman of E.F. Hutton. His central message was that active investing is required in a world where passive investing can be swept away by unforeseen events — events that take a toll on investor psychology and lead, eventually, to costly errors. Thus the battle for survival. But Loeb was very disciplined. He started with, and relied, on the fundamentals of an investment. But if conditions and prospects changed for that investment, he would change. Our own philosophy has clear parallels to Loeb’s principles. As shareholders in companies we are reliant on the record and prospects for those companies – their “fundamentals.” To give us a starting edge, we look for information that tells us a corporation is reliably focused on shareholder interests. We then monitor that information and actively respond to change, good and bad, similar to Loeb’s prescription. Unfortunately, corporate accounts do not give a complete picture of whether they are reliable in the way we need them to be. For example, there is a great deal of discretion in the way companies can report their sales and revenues. The same is true for recognition of their costs and expenses. Even more troublesome, there is very little accountability for how intangibles like good will and trade secrets are treated on income and balance sheets. As the economy has become more service oriented and less production oriented, intangible assets have become even more important. To deal with this challenge and, as a practical matter, we measure our interest in the corporation by whether it is growing its cash. In the end, companies cannot hide behind accounting gimmickry if they cannot grow their cash. So we start with the Statement of Cash Flow. This account adds non-cash charges (like depreciation and good will) back to operating earnings. It also adds back net changes in both working capital and financial capital. Finally, because we think there is added protection for shareholders in companies that invest in their future, we subtract those capital expenditures which are needed to sustain the business. What we end up with is “free” cash flow. While not foolproof, emphasis on changes in free cash flow becomes a benchmark for discerning whether a company is strong or not. Even with a difficult start to the New Year, no one really knows what lies ahead for investors. The environment of the last four years favored the broad category of companies that were buying back their stock. Our process should continue to benefit if the future looks like the recent past. But now that the Federal Reserve has initiated the first tightening in monetary policy in about a decade, we would expect that companies that finance their growth through free cash flow have a better chance to excel than those that have only used debt to buy back their shares, debt that could become more expensive. Those stronger balance sheets and the history of growth in free cash flow would likewise provide a cushion should the economy roll over into recession. At the other end of the spectrum, if some of the macro concerns gradually recede, then it is probable that investors will become less cautious and begin to focus on companies with well-financed organic growth like ours. Ted Theodore, CFA is vice chairman and chief investment officer of TrimTabs Asset Management and portfolio manager of AdvisorShares TrimTabs Float Shrink ETF (NYSEARCA: TTFS ). Additional disclosure: To the extent that this content includes references to securities, those references do not constitute an offer or solicitation to buy, sell or hold such security. AdvisorShares is a sponsor of actively managed exchange-traded funds (ETFs) and holds positions in all of its ETFs. This document should not be considered investment advice and the information contain within should not be relied upon in assessing whether or not to invest in any products mentioned. Investment in securities carries a high degree of risk which may result in investors losing all of their invested capital. Please keep in mind that a company’s past financial performance, including the performance of its share price, does not guarantee future results. To learn more about the risks with actively managed ETFs visit our website AdvisorShares.com .