The stock market movements for the April – September semester, highlight interesting differences in results in the dynamics of the primary world indices, from which it is possible to try to draw indications on the trend of the same during the last part of the year. In fact, the US indices lead the ranking with an increase close to 7%, the European indices recorded a positive average of close to 2%, while the Japanese index fell by 4% and the Chinese index by 14%. Compared to the start of 2021, the trends remain confirmed with the US at + 17.5%, Europe at + 13.2%, Japan at + 5.5% and China at – 10.5%. The bourse that appears most convincing at the moment is Japan, which rallied by 2.3% in the month of September alone, net, however, of an increase of 6 percentage points from the recent high for the period to 30,670 points in the Nikkei index, at the middle of the month just ended. The strong recovery of the index after a disappointing first half is due to the positive combination of three recent developments, consisting of the change of government, the containment of the pandemic and the avoidance of recessive GDP readings in the third quarter.
On the other hand, the problems persist that penalized the Chinese indices during the summer, which probably started a phase of technical accumulation at the lower end of their recent range, which will take some time before it can be considered an attractive buy level. In addition to the already known problems related to the government crackdown on the development plans of the major conglomerates active in the technology and education sectors, there is the financial crisis of the real estate giant Evergrande, which has stigmatized a long-known problem. In fact, the central government has intervened in the last three years to reduce the abnormal indebtedness of the shadow banking sector, to which the present case can also be attributed, given the enormous financial leverage present on its balance sheet, but with an evident scarcity of results. If we add to this the probable strategic change in the long-term economic development planning of the Asian giant, which passes from double-digit, but very volatile GDP growth rates, to a decidedly more contained albeit stable growth, it is understood that the stock market needs time to adjust stock valuations to the new level.
On a tactical level, the mini correction recorded by the primary indices during the last few sessions confirms the sensitivity of international investors to every rustle of fronds regarding the maintenance of expansionary monetary policy in existence since April 2020. In fact, a further mention, was enough during the recent meeting of the Directorate of the FED, of a gradual downsizing of the surreptitious purchase of government bonds starting from the end of the year, to see ten-year yields rise by 25 basis points and the dollar fall to 1.16 against the Euro, as in the fall 2020, and for the indices to correct almost 3 percentage points in one session. The risk lies not so much in an anti-inflationary short-term increase in the cost of money, which has been ruled out several times, also because the price inflation that is currently being recorded should prove to be transitory, but in a clumsy attempt by the central banks to mask this intervention by an excessive reduction in the creation of surreptitious liquidity. Some signs in this sense are already being enumerated, considering that the ECB and the Bank of Japan have suspended interventions, the FED continues to give timid technical indications of an expansionary policy, but only because Governor Powell is looking for a reconfirmation of his mandate which expires in February, while the People’s Bank of China in recent weeks, after months of absence, has assisted its credit system by injecting a minimum of new liquidity. So, the international monetary authorities are playing with fire because the gradual economic recovery underway would not stand up to any false steps, thereby advocating focused attention in the analysis of the toils of central banks in the short term, on which the direction of market trends depends.
Nicola Bravetti Data Source: Bloomberg
Data obtained on 05.10. 11:00 GMT
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