J-REITs: Cash for Trash   

• While a downward revision in global growth forecasts at the World Bank triggered profit taking, the OECD, the US Fed and Japan's BOJ as well as the Cabinet Office have been trying to paint a more upbeat picture of prospects for economic recovery, on the assumption that substantial economic stimulus implemented in the US, Japan and China will turn the tide.
• Global investors, however suspect that the global rally in stocks as well as commodities is now discounting more of a recovery than the post global financial crisis economies will be able to produce. For example, while the OECD bumped up its 2010 GDP growth estimates for major economies, it is clear that even relatively upbeat forecasts see a weak recovery in 2010 in other words, the recovery will be far from what could be described as "V-shaped". 
• In Japan, the leading indicators are showing improvement in producer inventories, consumer confidence, rate spreads, small business sales forecasts and stock prices, and the Cabinet Office's June review claimed that even exports were picking up.
• May export data however suggest more than a bit of optimism in the Cabinet Office's view of exports. May exports were down over 40% YoY and down -0.8% MoM, the first decline in the second derivative in three months. Moreover, Asia and China exports, which are generally expected to recover faster than US and European exports, continued to decline over 35% and nearly 30% respectively.
• With virtually no one looking for a "V-shaped" recovery but at the same time recognizing economies are bottoming and that the global financial system has stabilized, we see the US and global stock markets as well as commodity markets settling into a fairly well defined trading range through the summer and into the fall, until global economic and corporate profit fundamentals begin to catch up to stock prices.
• Japan's J-REIT market as well as small cap stocks on the other hand have begun to perk up. The government's JPY1 trillion JREIT bailout plan has caused BBB-rated or lower JREIT stocks to soar over 2.5-fold from March lows as these stocks get re-priced as going concerns instead of bankruptcy candidates.

< Go Back to List