{"id":83241,"date":"2023-11-10T23:20:14","date_gmt":"2023-11-11T04:20:14","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/japan-might-let-bond-yields-rise-what-that-would-mean-for-global-financial-markets\/"},"modified":"2023-11-10T23:20:24","modified_gmt":"2023-11-11T04:20:24","slug":"japan-might-let-bond-yields-rise-what-that-would-mean-for-global-financial-markets","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=83241","title":{"rendered":"Japan Might Let Bond Yields Rise. What That Would Mean for Global Financial Markets."},"content":{"rendered":"
\n

This commentary was issued recently by money managers, research firms, and market newsletter writers and has been edited by Barron’s.<\/em><\/p>\n

Yen Carry Trade\u2019s Future<\/h2>\n

3rd Quarter Update<\/p>\n

Heritage Capital
Nov. 10: <\/strong>Probably the most important news [in the third quarter] that got the least amount of attention was the Bank of Japan\u2019s shift in strategy to allow for more movement in Japanese government bonds. It sounds like nothing, but it is far from that. For decades, the Bank of Japan has purchased almost the entire Japanese bond market. I have heard estimates approaching 90%, so much that its bond market doesn\u2019t have much activity day to day. The BOJ buys bonds to firmly control all interest rates to prevent them from rising.<\/p>\n

\n

In turn, the Japanese currency, the yen, has been used in a multitrillion-dollar global trade known as the yen carry trade. Investors borrow money from the Japanese at absurdly low or even negative interest rates in yen and then convert that to dollars. With those dollars, they buy U.S. Treasury bills, notes, and bonds along with some \u201crisk on\u201d assets.<\/p>\n

Now imagine that the BOJ decides to let its interest rates fluctuate even a little as inflation has soared and its economy has greatly improved. The trillions of dollars involved in the yen carry trade suddenly need to be repriced, causing market volatility and a number of market dislocations. While this is good news for the Japanese over the long term, it is going to add challenges to the global financial markets as the trade continues to unwind.<\/p>\n

Paul Schatz<\/p>\n

Venture Capital\u2019s Problem<\/h2>\n

DataTrek Morning Briefing<\/p>\n

DataTrek Research
Nov. 8: <\/strong>Global venture-capital funding will likely remain depressed, given the disappointing performance of recent IPOs, apart from structural opportunities like in AI. More start-ups that raised capital at record rates in 2021 and the first half of 2022 will continue to struggle with getting follow-on investments and could fold as a result. Just last month, two high-profile unicorn companies shut down: digital trucking company Convoy and healthcare-claims management company Olive AI. Both were once valued at almost $4 billion, and had raised nearly $1 billion in funding. VCs are clearly opting for backing established start-ups in secular growth themes, such as AI.<\/p>\n

As much as AI has helped, global funding only totaled $221 billion in the first three quarters of this year, down 42% and 56% from the same periods in 2022 and 2021, respectively. The fourth quarter didn\u2019t start off well, with funding in October down 32% month to month even with Google\u2019s large investment in Anthropic. Ultimately, it will likely take a batch of successful venture-backed IPOs and more clarity on the macro front for VC funding to start trending higher.<\/p>\n

Jessica Rabe<\/p>\n

Why Tech Is Vulnerable<\/h2>\n

Market Commentary<\/p>\n

Cresset
Nov. 8: <\/strong> Notwithstanding the market\u2019s recent reversal, this year\u2019s remarkable performance has left the market\u2019s largest tech stocks vulnerable, as investors worry about future profits. Earnings reports from
\n Alphabet,<\/span><\/p>\n

Meta,<\/span>
\n and
\n Apple
\n were met with widespread selling. <\/p>\n

While the market selloff improved their valuations, the tech behemoths nonetheless remain fully valued, and future earnings-growth expectations could be in doubt. The S&P tech sector trades at a high, but not unheard of, 47% forward P\/E premium to the
\n S&P 500.<\/span>
\n Historically, tech has had a tough time outperforming the market over the subsequent 12 months at such wide valuation differentials. Last year at this time, the tech sector traded at a more normal 25% valuation premium, leading to a 25% outperformance.<\/p>\n

Jack Ablin<\/p>\n

Berkshire\u2019s Cash Stash<\/h2>\n

Earnings Edge<\/p>\n

Evercore ISI
Nov. 7: <\/strong>Cash, currently yielding upward of 5% courtesy of the Fed\u2019s aggressive hiking cycle, has become an ever more popular haven in what has been a turbulent sea of monetary, political, geopolitical, and earnings uncertainty. Yet
\n Warren Buffett\u2019s Berkshire Hathaway,<\/span>
\n which acknowledged last Saturday in its quarterly report that cash has risen to an almost unfathomable $157 billion, a figure whereby any one of up to 460 of the S&P 500\u2019s companies could be bought with Berkshire\u2019s trove, was punished by investors. <\/p>\n

This, as the Oracle of Omaha\u2019s cash trove is implying that a dearth of high-conviction opportunities for putting that cash to work, is the current state of equity markets.<\/p>\n

Julian Emanuel and team<\/p>\n

Bullish Investment Strategy<\/h2>\n

The Market Strategy Radar Screen<\/p>\n

Oppenheimer Asset Management
Nov. 6: <\/strong>We remain positive on equities and continue to see \u201cthe end of free money\u201d as a good thing for Main Street and Wall Street. Bond issuers now pay for the privilege of borrowing, and bond buyers get something in return in coupon yield when they buy bonds. The \u201cnew paradigm\u201d in yield and a renewed vigilance against inflation by the Federal Reserve look to us to be positives.<\/p>\n

Stocks remain attractive, with bonds complementary to equities if not quite competitive with their potential for capital appreciation driven by innovation from secular and cyclical perspectives, with companies across the 11 sectors potentially to benefit from greater efficiencies and scale. <\/p>\n

Our favorite sectors remain: information technology, consumer discretionary, and industrials. Energy remains attractive with increased M&A\/consolidation trending. We continue to favor portfolio design comprised of cyclical sectors over defensive sectors, with \u201cgrowthier\u201d value and \u201cGARP-ier\u201d growth stocks that ideally pay dividends.<\/p>\n

John Stoltzfus, Jim Johnson, Jared Krongold<\/p>\n

To be considered for this section, material, with the author’s name and address, should be sent to MarketWatch@barrons.com.<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

This commentary was issued recently by money managers, research firms, and market newsletter writers and has been edited by Barron’s. Yen Carry Trade\u2019s Future 3rd Quarter Update Heritage CapitalNov. 10: Probably the most important news [in the third quarter] that got the least amount of attention was the Bank of Japan\u2019s shift in strategy to […]<\/p>\n","protected":false},"author":1,"featured_media":83242,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-83241","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nJapan Might Let Bond Yields Rise. 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