Markets across Asia followed a similar trajectory in 2007 - in four distinct phases.
First came a steady rise in the first half of the year, then a big sell-off in July and August as subprime worries came to the fore. Third, there was a new boom amid talk of Asian decoupling, before finally shares sold off again towards the end of the year as subprime worries returned. However, it looks like being a strong year overall, with the MSCI Asia-Pacific ex-Japan index up 27 per cent so far this year, even if it is down 14 per cent from its peak on November 1.
The decoupling story helped produce an extraordinary period of outperformance for Asian markets in September and October - extraordinary because emerging markets are normally hit hard in a global financial crisis.
In Hong Kong, for example, the Hang Seng index bounced back by 65 per cent from the worst day of August, to a lifetime high of 31,958 in October. It was helped massively by a well-timed announcement from Beijing that individual mainland investors might be allowed to buy shares directly on the territory's stock market.
But the rally ran out of steam towards the year-end, as investors questioned the Federal Reserve's ability to avert recession in the United States - traditionally Asia's biggest export market. The Hang Seng is currently 16 per cent below its peak.
There were exceptions to this pattern. Mainland China was one: shares in Shanghai and Shenzhen seemed to ignore the credit squeeze altogether in the dark days of August and continued to power ahead until valuations hit dizzying, perhaps unsustainable, levels.
Shanghai B-shares (which foreigners are allowed to buy) trade on average at 103 times earnings - similar to the p/e ratios of technology companies at the height of the dotcom boom in the US. The Shenzhen composite index is 146 per cent higher than at the beginning of the year, and Shanghai is up by 88 per cent.
Japan was another exception: a rally in the first half of the year fizzled out and the subprime crisis sent markets firmly on a downward path that continued for the rest of the year. The Bank of Japan's gloom on Thursday continued to cast doubt on the ability of the country's economy to emerge from its torpor. The Nikkei 225 Average was down 12.7 per cent on the year at its close on Thursday, while the broader-based Topix index was 13.3 per cent lower.
"There's no getting away from it," noted Peter Tasker, analyst for Dresdner Kleinwort in Tokyo this week, "the performance of the Japanese stock market over the past 12 months has been hugely disappointing". But that presents an opportunity. "Japanese earnings carry the lowest valuations in 25 years; relative to bond yields the lowest ever," Mr Tasker says. "The Japanese market is cheap enough and low enough to rally sharply if global policy tilts in a reflationary direction."
Whenever Japanese equity yields have dropped below bonds in the past, such as in late 1998, early 2003 and spring 2005, the market has bounced back strongly. Even if profits fell by 20 per cent they would still look like good value for money, Mr Tasker says. Further, many Japanese companies are much more globalised than they were a few decades ago, so their profitability is much more robust and their sensitivity to domestic conditions lower.
First came a steady rise in the first half of the year, then a big sell-off in July and August as subprime worries came to the fore. Third, there was a new boom amid talk of Asian decoupling, before finally shares sold off again towards the end of the year as subprime worries returned. However, it looks like being a strong year overall, with the MSCI Asia-Pacific ex-Japan index up 27 per cent so far this year, even if it is down 14 per cent from its peak on November 1.
The decoupling story helped produce an extraordinary period of outperformance for Asian markets in September and October - extraordinary because emerging markets are normally hit hard in a global financial crisis.
In Hong Kong, for example, the Hang Seng index bounced back by 65 per cent from the worst day of August, to a lifetime high of 31,958 in October. It was helped massively by a well-timed announcement from Beijing that individual mainland investors might be allowed to buy shares directly on the territory's stock market.
But the rally ran out of steam towards the year-end, as investors questioned the Federal Reserve's ability to avert recession in the United States - traditionally Asia's biggest export market. The Hang Seng is currently 16 per cent below its peak.
There were exceptions to this pattern. Mainland China was one: shares in Shanghai and Shenzhen seemed to ignore the credit squeeze altogether in the dark days of August and continued to power ahead until valuations hit dizzying, perhaps unsustainable, levels.
Shanghai B-shares (which foreigners are allowed to buy) trade on average at 103 times earnings - similar to the p/e ratios of technology companies at the height of the dotcom boom in the US. The Shenzhen composite index is 146 per cent higher than at the beginning of the year, and Shanghai is up by 88 per cent.
Japan was another exception: a rally in the first half of the year fizzled out and the subprime crisis sent markets firmly on a downward path that continued for the rest of the year. The Bank of Japan's gloom on Thursday continued to cast doubt on the ability of the country's economy to emerge from its torpor. The Nikkei 225 Average was down 12.7 per cent on the year at its close on Thursday, while the broader-based Topix index was 13.3 per cent lower.
"There's no getting away from it," noted Peter Tasker, analyst for Dresdner Kleinwort in Tokyo this week, "the performance of the Japanese stock market over the past 12 months has been hugely disappointing". But that presents an opportunity. "Japanese earnings carry the lowest valuations in 25 years; relative to bond yields the lowest ever," Mr Tasker says. "The Japanese market is cheap enough and low enough to rally sharply if global policy tilts in a reflationary direction."
Whenever Japanese equity yields have dropped below bonds in the past, such as in late 1998, early 2003 and spring 2005, the market has bounced back strongly. Even if profits fell by 20 per cent they would still look like good value for money, Mr Tasker says. Further, many Japanese companies are much more globalised than they were a few decades ago, so their profitability is much more robust and their sensitivity to domestic conditions lower.
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