Japan stock market: Will the decline in NT ratio continue
2023-10-02
■ Is the long-term expectation of financial tightening in the United States and the relaxation of the YCC policy of the Bank of Japan one of the reasons for the decline in the NT multiplier?
■ According to the trend of US and Japanese treasury bond yields, it is estimated that there is still room for the NT multiple to decline.
The NT multiplier calculated by dividing the Nikkei Average by TOPIX has risen sharply since early May (13.9 times) and reached approximately 14.7 times in June, setting the highest level since July 2021. After the Nikkei average index rose to 33700 yen in June, it refreshed its post-foam peak, which fluctuated roughly between 31500 yen and 33500 yen. TOPIX continued to rise, hitting its post-foam peak in September. The NT multiplier has decreased to 13.6 times at the current time point, at its lowest level since April 2020. In the context of the gradual rise in the yield of the US 10-year treasury bonds after July, the performance of US high-tech stocks was weak, resulting in the suppression of growth stocks when they accounted for a high proportion in the Nikkei average index. At the same time, the Bank of Japan decided in July to relax its long-term and short-term interest rate operation (Yield Curve Control, YCC) policy, leading to an increase in domestic bond yields and a strong trend in bank stocks. In addition, due to the expectation of improving the operational efficiency of domestic enterprises, the growth momentum of low price-to-book ratio (PBR) stocks is strong, contributing to the rise of TOPIX and pushing up the proportion of cheap stocks. Therefore, it can be considered that the NT magnification has sharply decreased.
To sum up, it is very effective to judge the future trend of NT multiples based on the trend of US and Japanese treasury bond yields. In the United States, because the market is generally worried that the financial tightening will continue, the yield of treasury bond bonds will rise, which may cause the problem of overvaluation of the stock market. In Japan, high-tech and growth stocks may become limiting factors. On the other hand, although the Bank of Japan did not clearly determine the time of normalization of financial policies, it said that it would adopt normalization policies when conditions such as wages and inflation were met, so it believed that there was limited room for the yield of treasury bond to decline. The relatively dominant structure of cheap stocks may remain unchanged, so it may be too early to believe that the downward trend of NT multiples has been stopped. However, it should be noted that since late August, the increasing momentum of foreign investors purchasing TOPIX futures has exacerbated the decline in NT multiples, which also means that we need to be vigilant about the risk of a sharp change in the market environment as a result.
■ According to the trend of US and Japanese treasury bond yields, it is estimated that there is still room for the NT multiple to decline.
The NT multiplier calculated by dividing the Nikkei Average by TOPIX has risen sharply since early May (13.9 times) and reached approximately 14.7 times in June, setting the highest level since July 2021. After the Nikkei average index rose to 33700 yen in June, it refreshed its post-foam peak, which fluctuated roughly between 31500 yen and 33500 yen. TOPIX continued to rise, hitting its post-foam peak in September. The NT multiplier has decreased to 13.6 times at the current time point, at its lowest level since April 2020. In the context of the gradual rise in the yield of the US 10-year treasury bonds after July, the performance of US high-tech stocks was weak, resulting in the suppression of growth stocks when they accounted for a high proportion in the Nikkei average index. At the same time, the Bank of Japan decided in July to relax its long-term and short-term interest rate operation (Yield Curve Control, YCC) policy, leading to an increase in domestic bond yields and a strong trend in bank stocks. In addition, due to the expectation of improving the operational efficiency of domestic enterprises, the growth momentum of low price-to-book ratio (PBR) stocks is strong, contributing to the rise of TOPIX and pushing up the proportion of cheap stocks. Therefore, it can be considered that the NT magnification has sharply decreased.
To sum up, it is very effective to judge the future trend of NT multiples based on the trend of US and Japanese treasury bond yields. In the United States, because the market is generally worried that the financial tightening will continue, the yield of treasury bond bonds will rise, which may cause the problem of overvaluation of the stock market. In Japan, high-tech and growth stocks may become limiting factors. On the other hand, although the Bank of Japan did not clearly determine the time of normalization of financial policies, it said that it would adopt normalization policies when conditions such as wages and inflation were met, so it believed that there was limited room for the yield of treasury bond to decline. The relatively dominant structure of cheap stocks may remain unchanged, so it may be too early to believe that the downward trend of NT multiples has been stopped. However, it should be noted that since late August, the increasing momentum of foreign investors purchasing TOPIX futures has exacerbated the decline in NT multiples, which also means that we need to be vigilant about the risk of a sharp change in the market environment as a result.