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The market is in an adjustment phase for the time being due to the “withering summer market”!　How will the market develop in the second half of this year?

In the first half of this year, the yen weakened against the U.S. dollar and stock prices rose in the foreign exchange market. The Nikkei Stock Average hit an all-time high in February for the first time in 34 years, reached the 40,000-yen level in March, and most recently rose to the 42,000-yen level on July 11.

The U.S. presidential election is scheduled for November this year, and who is elected will have a major impact on the economy and other world affairs. The financial markets are likely to be watching this trend closely and will likely experience both joy and sorrow. We asked experts about the market development in the second half of this year.

Mutsumi Kagawa, chief global strategist at Rakuten Securities Research Institute, has the following view on the stock market in the second half of this year.

Japanese stocks will be in a “summer slump” through August and September, and will continue to trade in a firmer market, and may even fall if any shock occurs. If any shocks occur, they could fall. Looking at the behavior of U.S. stocks over the past 30 years, once the U.S. presidential election is over, stocks in the U.S. lose their strength and end the year higher, and Japanese stocks will probably do the same.

Takashi Hiroki, chief strategist at Monex, Inc.

For the time being, it will be the end of summer and a summer vacation. The Nikkei Stock Average recently hit the 42,000-yen level. The Nikkei Stock Average hit the 42,000-yen level the other day, which is a ‘speeding violation. We may be in an adjustment phase for a while.

He added, “We may see a correction phase for a while. Toward the end of the year, he believes Japanese stocks will “pick up” as uncertainty over the U.S. presidential election dissipates.

All of the experts expect that Japanese stocks will be in an adjustment phase for the time being in a “summer slump,” but that they will pick up toward the end of the year after the outcome of the U.S. presidential election is known. Until then, they also believe that the stock market will be susceptible to trends in the U.S. presidential election and other factors, and that market ups and downs (volatility) will increase due to a strong sense of uncertainty.

Trends in the U.S. Presidential Election…Nikkei Average to End the Year 4 … 50,000 yen Nikkei Average may reach ¥40,500 at the end of the year

How high will the Nikkei Stock Average rise toward the end of the year? Mr. Kagawa thinks the upside is around 43,000 yen and the immediate downside is around 38,000 yen. Hiroki thinks the upside is around 45,000 yen and the immediate downside could be as low as 37,000 yen.

How should we look at the U.S. presidential election, which has a major impact on financial market trends? President Biden had been seeking reelection, but his advanced age and growing health concerns led him to decide to withdraw from the presidential race. The Democratic candidate to succeed him is certain to be Vice President Kamala Harris, who is expected to fight against the Republican candidate, former President Trump.

Initially, there was a “what-if tiger” scenario that former President Trump would possibly win the U.S. presidential election. The scenario changed to an “almost tiger” when local polls reported an advantage for former President Trump. However, with the change in the Democratic Party’s nominee, that scenario has become uncertain.

Japan’s LDP presidential election is also uncertain, and Japanese stocks will be “weak until the fall”.

Former President Trump’s “America First” policy, high tariffs for protectionist trade, and a stance of prioritizing his own country over international cooperation have also caused some caution in the financial markets. Regarding the U.S. presidential election, Mr. Kagawa said, “I can’t make up my mind yet,

When Mr. Trump took office last time, every time he tweeted something on social media, the stock market was affected,” he said.

He adds, “The stock market was affected every time Trump tweeted something on social media when he took office last time. He also believes that uncertainty over the U.S. presidential race “will limit the upside in the market.

Hiroki points out that the LDP presidential election in Japan is also uncertain. Whether Prime Minister Fumio Kishida will seek reelection despite his unpopularity, or whether he will abandon his bid for reelection and run another candidate, will change the course of Japan’s leadership. With both Japan and the U.S. uncertain about their top choices, Hiroki believes that Japanese stocks may be “weak until the fall.

Let us now take a look back at the rally in Japanese equities in the first half of this year. Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, believes that “Japan’s unique favorable factors are the main reason for the rise in stock prices.

First, the Tokyo Stock Exchange (TSE) advocated last spring the realization of management that is conscious of capital costs and stock prices. This call for listed companies to improve capital efficiency and information disclosure has been well received, especially by foreign investors, and has made Japanese stocks a target for global investment, according to Mr. Ichikawa.

Second, companies raised wages substantially, raising expectations for a virtuous economic cycle. Third, the outlook for corporate performance has improved. In addition to corporate reforms, the weak yen also provided a tailwind for earnings, especially for exporters.

The single-minded “weak yen” is over. …… What will be the trend by the end of the year?

The depreciation of the yen is believed to be due to the widening interest rate differential between Japan and the U.S. While the U.S. has repeatedly raised interest rates to curb inflation, Japan has maintained a policy of ultra-low interest rates, making it easier for money to flow toward higher interest rates and accelerating the trend of buying dollars and selling yen. At the beginning of this year, the yen was around 140 yen to the dollar, but the yen weakened and the dollar strengthened, reaching the 160 yen level at one point in July. Since then, the yen has been hovering around 150 yen.

A weaker yen has a significant impact on the Japanese economy, such as accelerating inflation through higher import prices. What will happen to the exchange rate in the future?

Mr. Ichikawa said, “The single-minded weakening of the yen has ended,” and although he expected the yen to appreciate to about 147 yen by the end of the year, he believes there is room for the yen to move a little more strongly. The reason for this is that the U.S. will begin cutting its policy interest rate in September, narrowing the Japan-U.S. interest rate differential, albeit slightly. In the U.S., inflation is slowing, and interest rates are expected to shift from hikes to cuts. In Japan, large wage increases will permeate through the fall, and real wages, net of price increases, have been negative, but are expected to turn positive around September.

What kind of attitude should individual investors take? ……

Under these circumstances, what kind of attitude should individual investors take? Mr. Kagawa believes that since the value of cash and deposits will diminish due to inflation, allocating assets to stocks and other assets that can be expected to rise in value over the long term is an option. Although it is difficult to predict the long-term trend of the foreign exchange market, he recommends diversifying investments between Japanese stocks and overseas stocks, especially those of the United States.

As an example of diversification, Kagawa cites the Pension Fund Investment Fund (GPIF), which he says has a roughly 50-50 split between Japan and overseas, with the U.S. as the core of its overseas holdings. In addition, while the “core” is Japan and the U.S., the GPIF is focusing on India, which is growing remarkably, as a “satellite. This is the so-called “core-satellite” investment theory.

When investing in stocks, novice investors have a hard time selecting individual companies. If they make a long-term investment and the company goes bankrupt, their stock certificate becomes a piece of paper. Therefore, Mr. Kagawa says, index funds are an option. Index funds are investment trusts that are linked to a representative index that represents the movement of the overall market, such as the Nikkei Stock Average.

Unlike individual companies, index funds do not go out of business,” says Kagawa. For beginner investors, this is a good way to fill the investment limit of the new NISA, a small investment tax exemption system provided by the government,” he says.

In addition to Japanese stocks, he says, there are also investment trusts called “Orcan” (all-country = worldwide stocks) and investment trusts that invest in the S&P 500, the stock price index of companies representing the United States, as overseas diversified investment destinations.

Mr. Hiroki said, “It is good to buy before the market rises,” he said. It is a good idea to stock up now,” he says. Stock prices basically go up and down. It is a good idea to accumulate funds such as index funds. It is a long-term, steady investment.

Hiroki, on the other hand, makes the following point about interest rates in Japan. The BOJ has been buying a large amount of JGBs as part of its monetary easing measures to flood the market with funds, but after the monetary policy meeting on July 31, BOJ Governor Ueda announced a plan to halve the amount of JGB purchases by January to March 2014. Therefore, he believes that “money will no longer be available and money will be taken away from the market.

Banks will raise interest rates and compete for money, he said. Hiroki said, “As happened with Silicon Valley Bank in the U.S., we may see sudden failures of even weak financial institutions in Japan.

Large banks will probably be fine, but weaker financial institutions may be affected by the BOJ’s monetary normalization. Discernment will also be important in selecting investment targets.