Robert Alan Feldman of Morgan Stanley discusses why Japan is hit harder in the recent Asian dip of the markets. Japan’s close ties to China are a significant reason, but Feldman discusses other credibility problems for investors in Japan which may delay the return of the markets in Japan.
As global investors try to make sense of the sharp market correction, a key piece of evidence has come from the relative declines of different markets. Japan has been hit worse that other industrial country equity markets. The question is why?
One part of the explanation is that the Japanese economy is tied more closely to China, the immediate source of the current downdraft, than are the other industrial countries. Hence disturbances in China — in particular a clear effort by the Chinese authorities to cool the Chinese economy — leave Japan and Japanese company earnings more exposed than other countries.
However, China is far from the whole story. Indeed, many investors around the world are viewing events in China as a mere trigger to an adjustment that has deeper roots. Of course, global liquidity and incessant harping on the carry trade are global parts of the story. In Japan’s case, however, there are a number of domestic roots as well. It all comes down to credibility.