Chinese walker

   The much anticipated decision from the Bank of Japan, which increased interest rates rise from 0.25% to 0.5%, saw Japanese equities move sharply higher for most of the month as investors considered the move a vote of confidence from the central bank in Japan’s economy. The decision followed news that annualised fourth quarter Gross Domestic Product hit 4.8% against a forecast of 3.8%. Corporate results were also positive during the month, as retailers gained on hopes that a stronger economy would boost consumer spending. Over the month, the Topix index rose 1.8%, although much of the earlier positive performance was wiped out at the end of the month by the concerns centring on other Asian equity markets.

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      Equity markets are undergoing a process of correction in prices that is largely driven by technical concerns and partly by fundamental factors. The correction began at the end of February with the initial nominal cause being a 10% fall in China A-shares. Whilst the fall in China shares is not in itself fundamentally meaningful, as Chinese markets had more than doubled over the previous year, it did highlight that equity markets had become frothy and it was easy to see a meaningful, sharp correction. Aside from a fall in equity prices, there has been a general reduction in risky trades. Emerging market and high yield debt prices have fallen, the value of the yen has risen after the yen had been the worst performing currency in the past year, and general volatility has jumped significantly.

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