WeeklyWatch – PM’s resignation sees Japanese markets surge

07 September 2021

Stock Take

Swings and roundabouts

Friday saw Japanese markets surge, following Prime Minister Yoshihide Suga’s statement that he will not run for re-election.

Prime Minister since last September, Suga was in charge during the Olympics in Tokyo. The event has been held responsible for a wave of COVID-19 cases far exceeding previous surges throughout the country. Suga’s approval ratings have subsequently taken a hit as the year has gone on.

Japanese markets have likewise experienced a discouraging 2021 to date. Compared with European and American markets – many of which are trading at record highs – the Nikkei 225 and TOPIX indices reached their highest point earlier in the year and have been steadily dropping ever since.

On the other hand, with the ruling Liberal Democratic Party set to hold an election later in September, stocks had been growing over the week, ahead of a potential new leader. This recovery accelerated immediately following Suga’s announcement. The TOPIX rounded off the week at a record high, and the Nikkei grew 4.5%, reaching its highest level since June. US markets closed the week on a somewhat disappointing note after 235,000 jobs were added to the world’s largest economy, contrasting with forecasts of over 700,000.

The main drivers behind the slowdown were fewer new government jobs being added compared to previous months, along with the hospitality and leisure sector figures seeing no growth – perhaps influenced by the continued spike in COVID-19 numbers.

However, it wasn’t all doom and gloom on the data front, as unemployment fell over the month, and average earnings received a surprise boost of 0.6% month-on-month, or 4.3% year-on-year. American stocks had previously been inching higher. This was initially helped by impetus from Federal Reserve Chair Jerome Powell’s speech at the end of the previous week, and was continued as investors forecasted the end-of-month jobs data.

While the S&P 500 and the Nasdaq posted somewhat muted figures on Friday morning, as a whole, both indices were up for the week, reaching further into record territory. Ian Shepherdson, Chief Economist and CEO of Pantheon Macroeconomics, proposed that August’s jobs figures may be the beginning of a period of slower jobs growth, looking forward.

He said:

“September likely will be weak too, and we’re becoming nervous about the prospects for a decent revival in October, given that behaviour lags cases, and cases are yet to peak.

“Before Delta, we were looking for one million-plus payroll gains in the fall, but that’s now going to be a real struggle, suggesting that Chair Powell will be in no hurry to be pushed into tapering while the labour market picture is so uncertain. We think the announcement comes in December, but the FOMC could easily be forced to wait until January.”

Signs of positivity

UK and European markets were impacted by US jobs figures. In the UK, for example, the FTSE fell 0.4% on Friday. In spite of this, the FTSE 100 managed to just about finish in positive territory for the week.

The FTSE 100 did see some possible short-lived joiners to the index, in the shape of supermarket Morrisons and aerospace engineering firm Meggitt, which have both witnessed their share price surge dramatically recently thanks to takeover bids. Should these takeovers be successful, however, they would subsequently be delisted.

Last week also witnessed the EU reveal inflation data for the euro in August, which reached 3.0%, compared to an anticipated 2.7%. This led to calls from some to halt the EU’s Pandemic Emergency Purchase Programme (PEPP) and end further monetary easing.

However, Mark Dowding, of BlueBay, remarked:

“It seems policy is still firmly driven by the executive board, and last week’s comments from chief economist Lane – while appearing to suggest that PEPP purchases may slow following the monetary policy meeting in September – reinforced that the overall policy stance will remain very accommodative.”

Wealth Check

Last week, reports circulated that Downing Street was due to announce a tax rise to cover the cost of social care reform – as was indeed confirmed by Boris Johnson today.

The Prime Minister has announced that the tax will begin as a 1.25% rise in National Insurance and tax on share dividends from April 2022, and will be a separate tax on earned income from 2023. Johnson has told MPs that the move – which he accepts breaks a manifesto commitment – will raise almost £36 billion over three years for front-line services.

National Insurance payments are taken from employees’ earnings and self-employed people’s profits, and they’re also paid by employers – however, they’re not paid by those in retirement. To date, some critics have argued that the plans would be unfair, given that pensioners don’t pay National Insurance contributions.

Even if you decide to keep your financial plans as they are, catch-ups and regular communication with a financial adviser, about topics such as tax, are always a wise move – after all, the more your adviser understands what’s going on in your life, the more he or she will be able to support you.

Have a conversation with your Wellesley financial adviser today if you would like help identifying simple but effective tax-saving opportunities about completing a Tax Health Check.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

In The Picture

Take a look at this interview with Edward Robertson from Somerset Capital Management, Manager of the St. James’s Place Global Emerging Markets fund since early 2020, to discover how investors can think about China. Among other things, he discusses the market’s recent concerns about Chinese regulation, how to invest responsibly in emerging markets, and the current inflation debate.

The Last Word

“The battle against the coronavirus takes a vast amount of energy, and I don’t feel it is possible to carry on with that and fight the upcoming election for the party leadership.”

Japan’s Prime Minister Yoshihide Suga announces that he will step down this month.

 

The information contained is correct as at the date of the article.

BlueBay and Somerset Capital are fund managers for St. James’s Place.

The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place or Wellesley Wealth Advisory.

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