This article is a reprint from “Toushiru” provided by Rakuten Securities, “Understanding in TOP 3 Minutes! Today’s Investment Strategy”. Today’s point The plunge in the NT ratio will be the final phase of market adjustments? The revenge of cheap stocks will drive the “relative strength of TOPIX” The US government and financial authorities will face the “high-pressure economy” The US-China conflict intensifies: Finances Is also a US risk? We would like to introduce the views of Mr. Mutsumi Kagawa, Chief Global Strategist, Rakuten Securities Economic Research Institute, on these four points. Will the plunge in the NT ratio be the final phase of market adjustment? In both the Japanese and US markets, major stock indexes have been on a heavy upside. While the US long-term interest rate, which had been wary, seems to have stopped rising, the “intensifying conflict between the US and China” is a cause for concern in the US market. There was concern about the re-expansion of the Corona Virus infection in the Tokyo market. The Nikkei Stock Average fell below 29,000 yen for the first time since March 8 (28,743 yen), falling below the level that was the adjustment bottom from the year-to-date high (30,467 yen), and double top (2). The formation of the ceiling) was also wary. There is also the influence of supply and demand factors that make it easy for institutional investors to sell rebalances (portfolio adjustments) toward the end of the fiscal year (end of March). Under these circumstances, the sharp drop in the “NT ratio” (Nikkei average ÷ TOPIX) was noticed in March. Chart 1 shows the changes in the NT magnification and the 200-day moving average over the last three years. The Nikkei Stock Average, which has a high weight of growth stocks, has fallen relatively due to the effects of growth stock (growth stock) adjustments triggered by expectations of reflation in the US market and rising long-term interest rates. The ETF (Exchange Traded Fund) buying policy announced by the Bank of Japan at the monetary policy decision meeting on the 19th also has an effect on excluding the “Nikkei 225 ETF” from the purchase target and concentrating on the “TOPIX type ETF”. “The Nikkei 225 exclusion of purchases is to eliminate the biased impact on individual stocks,” said BOJ Governor Kuroda. However, the NT ratio seems to have digested the reactionary adjustment (which fell to the 200-day moving average level), which had risen excessively since last fall.
Source: Created by Rakuten Securities Economic Research Institute from Bloomberg (early 2018-March 25, 2021)