Month: May 2023

Japan’s stock market is soaring to multi-decade highs, but large investors with long memories are staying out. Riding a wave of buybacks and strong corporate earnings, the broad Topix index scaled peaks not seen since 1990 this week. However, many foreign asset allocators are reluctant to venture into the market due to the perilous policy path ahead.

The research arm of BlackRock recommends an “underweight” allocation to Japan and is waiting for policy uncertainty to clear. Swiss wealth manager Union Bancaire Privée is also underweight Japan, with the policy outlook presenting currency risks. UBS’ chief investment office is neutral and prefers China as a global slowdown looms.

The policy and communication challenge for new Bank of Japan governor Kazuo Ueda is a tricky one. He has begun laying the foundations for a shift by saying the bank will debate an exit strategy from its policies once inflation looks stable. While he believes it is too early to discuss specifics, markets are already worrying about the fate of the BOJ’s vast asset holdings and expect the yen could quickly reverse last year’s precipitous decline if its loose policy settings look like they may be unwound.

Warren Buffet has increased his stakes in Japan’s trading houses and says he is eyeing other purchases. However, foreign flows into open-ended Japan funds are already turning fickle, suggesting a sustained turnaround is some time away.

Overall, investors remain cautious as the Bank of Japan’s new governor plots a course back to normality. Until policy uncertainty clears, many investors are likely to stay out of the Japanese stock market.

As the U.S. CRE and construction markets face challenges, regional banks have been reducing their exposure by tightening standards and making fewer loans. According to new data from Trepp, many regional banks have exceeded key regulatory thresholds for exposure to the sector. Banks whose CRE or construction loan holdings exceed 300% and 100% of their total capital, respectively, should expect to receive greater regulatory scrutiny.

In order to comply with the regulatory guidance, banks may have to consider selling off CRE loans at a steep discount. Sellers may encounter limited interest and may have to take losses on the assets. JPMorgan has estimated that about 21% of outstanding office loans in commercial mortgage-backed securities will eventually default.

The new data underscores how acute and widespread the problem is across the banking sector. Banks may have to pull back on their lending to allow their CRE debt to roll off, or even divest parts or all of existing loan books. It remains to be seen how the situation will play out, but it is clear that regional banks will have to take action to comply with the regulatory guidance.

Japanese Prime Minister Fumio Kishida welcomed and expected more investment from global chipmakers in Japan during a meeting with top executives on Thursday. The meeting was held ahead of the Group of Seven summit, which is set to begin on Friday.

Kishida told the executives, including those from Micron Technology Inc, Intel Corp and Taiwan Semiconductor Manufacturing Co, that stabilising supply chains would be a topic of discussion at the G7 talks. He also expressed his desire for the government to work on further expanding direct investment in Japan and support the semiconductor industry.

In response, Micron said it would bring extreme ultraviolet (EUV) technology to Japan, becoming the first semiconductor company to do so, and expected to invest up to 500 billion yen with support from the Japanese government.

The G7 summit runs from Friday to Sunday, and Kishida is set to meet with U.S. President Joe Biden later on Thursday. Public support for Kishida has been on the upswing in the run-up to the summit, with a Jiji poll on Thursday showing approval for his cabinet exceeded disapproval for the first time in nine months.

Tesla Inc held discussions with Indian government officials this week to explore ways to participate in domestic incentives related to car and battery manufacturing. The electric car maker proposed setting up a factory in India to build electric vehicles (EV) and also discussed plans to locally manufacture EV batteries. Tesla also discussed India’s import taxes on cars but talks mainly centred around understanding the local policies and incentives to set up a new factory. If successful, this could be a major step forward for Tesla in India, allowing them to tap into the growing EV market in the country.

European stock markets are expected to open largely unchanged on Thursday, as investors await further news on the potential for a deal to lift the U.S. debt ceiling and comments from ECB chief Christine Lagarde. Optimism has been buoyed by the apparent determination of President Joe Biden and top U.S. congressional Republican Kevin McCarthy to reach an agreement soon.

In the corporate sector, Deutsche Bank has agreed to pay $75 million to settle a lawsuit by women who say they were abused by the late financier Jeffrey Epstein, and accused the German bank of facilitating his sex trafficking. Additionally, quarterly earnings are due from the likes of EasyJet, Burberry, BT Group, National Grid and Premier Foods.

Oil prices retreated Thursday, handing back some of the previous session’s solid gains as markets awaited more news on the potential lifting of the U.S. debt ceiling. Crude prices rallied over 3% on Wednesday on optimism that a deal on raising the U.S. debt limit could shortly be reached. By 02:00 ET, U.S. crude futures traded 0.5% lower at $72.44 a barrel, while the Brent contract dropped 0.5% to $76.56. Additionally, gold futures fell 0.2% to $1,980.75/oz, while EUR/USD traded 0.1% lower at 1.0829.

The new production capacity will be located in North America and will be used to produce 4680 battery cells, which are larger and more powerful than the current 2170 cells used in Tesla’s vehicles. Panasonic said it will invest in the new production capacity to meet the growing demand for electric vehicles.

The company also said it will continue to invest in research and development to improve the performance and safety of its batteries. Panasonic is the exclusive supplier of batteries for Tesla’s vehicles and the two companies have been working together since 2009.

The move is part of Panasonic’s efforts to expand its presence in the electric vehicle market and meet the growing demand for electric vehicles. The company is also investing in other areas such as solar energy and energy storage solutions.

SQM, the world’s second-largest lithium producer, reported a 6% drop in net profit for the first quarter of 2021, totaling nearly $750 million. Revenue for the miner was up 12% compared to the same period last year, driven by a 34% increase in average lithium sales prices. Sales volumes, however, were down 15% due to advanced purchases in the previous quarter and high levels of stock across the battery supply chain. CEO Ricardo Ramos noted that the weaker demand was offset by the higher prices and expects sales volumes to recover in the second quarter. Last month, Chile’s President Gabriel Boric proposed a state-led development model for the coveted battery metal, which would require SQM to invest an additional $2 billion.