With Fed Chairman Bernanke driving the dollar lower… While it has historically been difficult for Asia/GEM to perform in a rising USD environment because of falling commodity prices, in this note, we want to highlight another important channel: the stronger USD implies JPY weakness says Sakthi Siv of Credit Suisse Asia/Pacific. While the fall in the DXY (trade-weighted dollar) may just be a blip, Figure 1 highlights that the price-to-book gap between Japan and Non- Japan Asia has narrowed to just -0.1x. This is the smallest price-to-book gap since October 2006. In contrast, the price-to-book gap between Japan and the world is still a large -0.52x.
Net foreign buying YTD of US$83 bn in Japan versus US$3 bn in Emerging Asia. As highlighted in our report of 9 July, Net foreign buying – have we lost our "foreign" friends?, YTD net foreign buying in Japan is US$83 bn versus US$3 bn for Emerging Asia ex China ex Malaysia.
A pause in Japan's outperformance versus Non-Japan Asia? While MSCI Japan has outperformed MSCI World by 18% since the lows late last year, the outperformance versus MSCI Asia ex-Japan is a much larger 38%.
Figure 1: Japan price-to-book less Non-Japan Asia price-to-book
The price-to-book gap between Japan (1.37x) and Non-Japan Asia (1.47x) has narrowed to just -0.1x. This is the smallest price-to-book gap since October 2006. See Figure 1.
In contrast, the price-to-book gap between Japan and the world is still a fairly large -0.52x (Figure 2).
Figure 2: Japan price-to-book less world price-to-book
The valuation gap with MSCI Asia ex-Japan is much smaller as MSCI Japan has outperformed MXASJ (MSCI Asia ex-Japan) by a very strong 38% since the lows in late 2012. Figure 3.