Global View Has the Earth Just Moved In Japan November 2017
Has the Earth Just Moved In Japan?Our 2017 views have centred on two key themes: a stronger China and a weaker US dollar. We predicted the implications would be a higher Euro and strongly rising Asian stock markets, as regional policy-makers monetized the impact of capital inflows. We were ambivalent towards the Yen. Our hunch that things had changed in Japan may be borne out by subsequent events, which unusually have seen the Yen largely unmoved by a skidding US dollar, but Tokyo stocks upbeat. We argue again here that Bank of Japan policy looks to have made a sea-change towards targeting the Yen and no longer targeting the volume of liquidity at a set level. If correct, it provides further bullish ammunition for Japanese equities, but warns of upcoming problems for fixed income markets.
CrossBorder Capital Ltd (CrossBorder) is a London based, FCA registered, independent investment firm founded in 1996. It is owned by its partners and has no affiliations with banks, stockbrokers or other financial institutions.
CrossBorder's core competence is the measurement and analysis of global liquidity flows. Liquidity is a source of funds, in contrast to money which is a use of funds. It is defined as the flow of cash plus credit, or more explicitly as savings plus the change in base money plus the change in bank credit. Liquidity is therefore a more comprehensive measurement of fund flows than the monetary aggregates used traditionally. Liquidity research is applied to determining the outlook for a range of asset classes including equities, fixed income, currencies and hedge fund styles over varying time horizons.
Central to this analysis is the monthly collection and analysis of balance sheet data from over seventy of the world's central banks to quantify the level and direction of liquidity in each country. This data is publicly available, aggregate as opposed to sample, and rarely significantly revised. It is also little used by investors, and CrossBorder's prime utility is bringing this set of data to investors in a timely and user-friendly way.
CrossBorder's insights rest on two philosophical assertions: first, there is a regular cycle of liquidity, and asset class price movements tend to move sequentially over the cycle. By measuring where we are on it, we can significantly reduce 'fat tail' outcomes in our predictions for asset price movements. Secondly, weightings of asset classes held by investors in aggregate tend to revert to the long term mean. By measuring the variance from this mean, we can understand whether a particular trade is 'crowded' or the reverse.
CrossBorder offers these insights both as the Liquidity Research research service, and in the form of systematically allocated in-house funds. Clients of the Liquidity Research service include leading banks, fund managers (both traditional and hedge) and insurance companies located worldwide. CrossBorder additionally manages and advises on tactical asset allocation products for third parties.
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