After decades of "loss", the Bank of Japan ended its massive monetary easing policy, and its next move is closely watched, with another rate hike likely this summer. The United States is facing the expectation of interest rate cuts, and the recent employment data and non-farm payrolls data are strong. In this issue of Helen's Financial Dinner, we invite Sun Yafei, founder and CEO of Fifth Fortune, to give an in-depth interpretation.
Attached is the timeline of this live broadcast to help you quickly jump to the part you are interested in
01:25 How do you see Japan's interest rate hike? Are there still many opportunities for investors to invest in Japan in the future?
12:20 Is there a possibility of a black swan in the future?
18:56 Some institutions pointed out that they are wary of the risk that the Fed will not cut interest rates throughout the year. What is your judgment on the Fed's interest rate cut?
25:12 If the Fed cuts interest rates, will gold rise next?
18:27 What do you think about the next trend of Japanese stocks?
33:38 After the end of the interest rate hike, U.S. stocks rebounded strongly, and consumption upgrade-related sectors such as information technology, optional consumption and communication services performed better.
42:42 What's next for the property markets in Japan and the United States?
49:39 What do you think of the opportunities in the pan-Southeast Asian region?
Helen: What do you think about Japan's interest rate hike, and are there still many opportunities for investors to invest in Japan in the future?
Sun Yafei: Japan raised interest rates once in 2007, this time from negative interest rates to positive interest rates, but the magnitude of the interest rate hike is also very limited, I don't think it will have a big impact, but the interest rate hike means that the economy has a tendency to overheat, and it is necessary to control inflation. Interest rate hikes will encourage some overseas capital to flow back to Japan, and will also cause wages in Japan to rise to a certain extent, and will also promote the growth of future consumption. Since Japan has not raised interest rates in 17 years, it must be a slow process of raising interest rates in the future.
The Japanese stock market has grown by almost 60% over the past year, not only because of the depreciation of the yen, but also because of other factors. Since the implementation of Abenomics in 2013, the yen has fallen from 101 yen per dollar to 153 yen per dollar, a depreciation of about 50%. Interest rate hikes are likely to increase the yen, which has an impact on the exports of Japanese companies and is good for China's export-oriented companies. A stronger yen means that Japan is more inclined to buy foreign goods, while rising wages are also helping to boost consumption. Therefore, for foreign trade enterprises, especially export-oriented countries like China, they should plan in advance and look for opportunities for foreign trade transactions with Japan to facilitate exports.
Helen: Based on past experience, when Japan raises interest rates, it is often the end of a cycle when the world economy has prospered to a certain level, and it has entered a point where black swans are prone to occur. Perhaps what Japan is thinking about is that the Fed is about to enter a cycle of interest rate cuts, and if it does not raise interest rates itself, the future will be even more unfavorable. What do you think? Is there a possibility of a black swan in the future?
Yafei Sun: I witnessed the 2007 subprime mortgage crisis in the United States, the turmoil on Wall Street and the collapse of Lehman Brothers, but it is unlikely that there will be a similar black swan event in the United States and Japan again. Japan's gradual shift from a prolonged state of deflation to mild inflation is good for the economy. Over the past decade, Japan's economic structure has undergone significant changes with the support of Abenomics, especially in the high-tech sector, with numerous patents and a position in the global industrial chain second only to the United States, and even ahead of Germany and Europe. Japan's industrial upgrading and economy have benefited from this transformation, which is no longer limited to traditional white goods and other fields, but is transforming to a more sophisticated technology field, which is one of the reasons why the Japanese stock market has been able to recover, and the profitability and industrial structure of the Japanese economy have undergone positive changes.
Japan has invested heavily in the field of semiconductors and artificial intelligence, especially the establishment of an advanced chip production base in Kumamoto Prefecture, and more advanced chip bases are also planned in the future. Since the 2008 financial crisis, both the U.S. and Japan have strengthened regulation, which helps to detect and prevent violations early, thereby reducing the risk of financial crises. The U.S. and Japan are now structurally and more heavily regulated than in the past, which can help prevent future economic crises.
Helen: Since the beginning of the year, the market's expectations for the Fed to cut interest rates have been significantly corrected, and at the same time, PMI, employment and other index data have continued to exceed expectations, which in turn has led to the rise of real interest rates. What is your judgment on the Fed's interest rate cut?
Sun Yafei: Since March 2022, the United States has raised interest rates consecutively, with a total of 11 interest rate hikes, adding a total of 525 basis points, from 0.51% to 5.5%. Although interest rate hikes help curb inflation, they can also increase the cost of borrowing for businesses, affecting corporate vitality. Despite the large interest rate hikes in the United States, its financing channels are smooth and supervision is in place, and companies can still obtain relatively low-cost funding in a variety of ways. Policy support and diversification of financing channels can help businesses grow, for example, by attracting overseas capital through investment immigration policies.
Considering the adverse impact of continued interest rate hikes on corporate growth, as well as the negative impact on the housing market, the United States is likely to cut interest rates in the third or fourth quarter of this year. A low interest rate environment is more conducive to business development and stock market performance, so interest rate cuts are a necessary policy adjustment. I am optimistic about the resilience of the U.S. economy and the future direction of monetary policy, and expect the U.S. to take steps to support continued economic growth and business prosperity.
Helen: If the Fed cuts interest rates, will gold enter an upward cycle next?
Sun Yafei: The rise in gold prices reflects people's distrust of the economy and the world political order, especially in the market panic and risk aversion under the influence of the Russia-Ukraine war. While gold is often seen as a safe-haven asset, investing in gold may have been overheated and overpriced in the current situation. The possibility of a third world war is very small, because the fundamental purpose of war is to gain wealth, and a full-scale war will lead to the destruction of wealth, which is contrary to the original purpose of war. Despite the current international tensions and the critical period of the US election, the market sentiment is biased towards negative and pessimistic, which has contributed to the rise in gold prices.
I prefer to invest in equities after a rate cut, and it is more valuable to buy equities during a downturn than to invest in gold at a high level. As interest rates fall, the stock market is likely to rise. It is recommended that everyone remain rational in the current economic environment and consider diversified investment strategies, rather than blindly chasing gold.
Helen: After the interest rate hike, there have been some adjustments in Japanese stocks since April. Previously, it was mainly foreign investors who invested in the Japanese stock market, and Japanese stocks have attracted the attention of global investors, including Warren Buffett. The Nikkei 225 index broke through its 1989 peak in February this year, will more people invest in Japanese stocks in the future?
Sun Yafei: Overseas stock markets are closely related to corporate fundamentals, economic policies and capital flows, and interest rate hikes will attract capital to Japan, which may be invested in the real economy or the stock market, which will affect corporate values and stock market performance. Japanese companies have generally raised wages, which will greatly boost consumption and investment, and real estate and the stock market in particular will directly benefit from the slight impact of inflation and rising incomes.
Warren Buffett's increased investment in Japan's top five trading companies shows his confidence in the Japanese stock market. I am optimistic about the Japanese stock market, which is good for the stock market due to changes in Japan's industrial structure and the improvement of corporate profitability, as large Japanese companies have increased the value and scarcity of shares by buying back and canceling shares, providing upside for the stock market. At the same time, as Japanese companies catch up in areas such as artificial intelligence, semiconductors, and life science technologies, these high-tech manufacturing-related stocks have high investment value.
Helen: Gold and the S&P 500 are up about 10% so far in 2024. After the end of the interest rate hike, the U.S. stock market rebounded strongly, and the information technology, optional consumption and communication services and other consumption upgrade-related sectors performed better, and the three major stock indexes all hit intraday highs last month, after hitting a new high, which also caused the market to worry about the bursting of the U.S. stock bubble. Do you think it's a bubble? Will the bubble burst in the future?
Sun Yafei: Half a year ago, I went to the United States to live for a period of time, and found that despite the inflation in the United States, the life of the American people is not in trouble, although the price of prices, for example, the price of a dozen eggs has risen from 99 cents in the past to $1.89, but the salary level has also increased, drivers who drive Uber or Didi can earn $10,000 a month, even undergraduates, graduates can get a starting salary of $10 to $150,000, and MBA graduates can earn a starting salary of between $15 and $200,000. This suggests that wages are growing at a rate that is commensurate with rising prices.
Also, I see many construction sites in Washington and Virginia that are building office buildings, which often means the birth of new businesses and economic growth. The unemployment rate in the United States hit a 20-year low of just 3.43%. Tips in the service sector have risen from 10%-12% to 18%-20%, which also reflects the rise in wages in the service sector, which in turn boosts consumption. We are in the era of AI, and many high-tech companies are just getting started, and there is a lot of room for development in the future. Take Nvidia's stock as an example, even though the stock price is already high, it still has great potential for technological revolution, so it is still optimistic.
So I'm optimistic about U.S. stocks, although the previous Russia-Ukraine war, the global pandemic, and the strong U.S. interest rate hikes have affected market sentiment and caused some stocks to be undervalued, but there is no bubble in U.S. stocks, and with the arrival of a new generation of technological revolution, U.S. stocks still have room to rise. The high-tech and life sciences sectors deserve to be understood and invested in by investors.
Helen: What is the next trend of the property market in Japan and the United States? Now that many Chinese go to Japan to invest in real estate, will real estate still be a good investment product in the future?
Sun Yafei: Real estate has always been one of the main channels for Chinese to increase their wealth, but the real estate market may face some changes in the next decade. If there are idle funds and lack of investment channels, the overseas real estate market can be properly considered, but it must be in-depth analysis and maintenance with the help of professionals to avoid investment failure. The real estate markets in the U.S. and Japan are closely related to the state of the economy, and it is necessary to carefully analyze the situation in the investment area, and how to invest in it. For example, in Japan, if you are looking for high returns, you can consider investing in a homestay or an undervalued area, but you need to choose the right area according to the purpose of the investment.
For the U.S. housing market, with the exception of a brief decline during the subprime mortgage crisis, U.S. real estate prices have shown a steady upward trend for a long time. Investors need to consider the cost of borrowing and holding the money, including real estate taxes. Areas with low value or high rent-to-sale ratios should be selected to cover the cost of ownership. I help clients choose investments in the U.S. without losing money, but not just buying a property can make money. If not invested properly, the income may not cover various fees and high interest rates. Real estate investment requires meticulous management, both at home and abroad, and requires careful analysis and professional investment strategies.
Helen: Under the dimensions of de-globalization, debt cycle, and AI industry trends, the global stock market has diverged after the pandemic, and the stock markets of Japan, the United States, and pan-Southeast Asia (India, as well as Vietnam, the Philippines, and Indonesia in the Southeast Asian market) have performed prominently, one of the reasons for which is the "new investment paradigm". The pan-Southeast Asian region has inherited the spillover effect of China's manufacturing industry. From a debt cycle perspective, lower leverage, potential demographic dividends, and lower urban ratios provide investment potential for pan-Southeast Asian economies to support economic growth. How do you see opportunities in the pan-Southeast Asian region?
Sun Yafei: I recently went to Indonesia and Vietnam, where I spent the Chinese New Year, and the current situation in Vietnam is very similar to the situation in China between 2008 and 2010, and the economic growth figures are impressive, especially the significant growth of foreign investment, and Singapore is the country that has invested the most in Vietnam. Vietnam's young workforce provides strong support for the country's manufacturing sector, with data showing that people under the age of 30 make up about half of Vietnam's total population, with about 1 million young people entering the labor market every year. I was also impressed by the size of Indonesia's population, the popularity of English, and the low cost of goods and labor. This allows Southeast Asia to take on the relocation of low-end industries from China, such as the production of fast-fashion brands Zara and H&M. Although Southeast Asia lags behind China in terms of education, infrastructure and economic aggregate, they have demographic advantages and labor cost advantages.
China needs to quickly transform its industrial structure. Capital that has already achieved primitive accumulation can be taken into account in these emerging developing countries with lower labour costs to seek investment opportunities. These countries are in the early stages of development, offering new investment opportunities and growth potential.
The above is part of the content of this issue of Helen's Financial Dinner, if you want to see the full content, you can watch the live broadcast replay of Helen's Financial Dinner Issue 56 "Monetary Policy Differentiation between the United States and Japan, How to Invest in Overseas Markets?".
Helen's Finance Dinner will be broadcast every two Tuesdays at 17 o'clock, and the live broadcast will be broadcast live on Titanium Media APP, Titanium Media PC, Titanium Media Weibo, Titanium Media Video Account, and Titanium Media Baijia Account. (Manager: Helen; Planner: Helen; Director: Yu He; Article: Helen)