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Indian Penny Stocks With Strong Fundamentals 2019

Author: First Adviser
by First Adviser
Posted: Sep 29, 2019

Indian Penny Stocks With Strong Fundamentals 2019

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According to theory, if there is a sufficient number of transactions (liquidity) going on in the market and prices are determined through free trading by diverse participants, then it is a good market. Then what is happening in Japan’s financial markets?

In the bond market, nearly half the Japanese government bonds are owned by the Bank of Japan. The yield curve has long remained largely flat due to the central bank’s zero interest rate and quantitative easing policy. This seems pretty much to be a distorted market.

Turning to the stock market, the central bank has already become a major shareholder of 50 percent of the nation’s listed companies. According to a forecast by the Nikkei daily, the BOJ is set to be Japan’s largest shareholder by the end of 2020, topping the Government Pension Investment Fund (GPIF). Either way, the government sector represented by the BOJ and GPIF will become the top two players in Japan’s stock market. As the bond market, this is a fairly distorted market structure.

What’s even more serious is that an exit to normalizing such conditions of the markets remains nowhere in sight. The government and the BOJ should at least publicly present several possible scenarios toward normalization of the markets.

Exchange rate policiesIn 1973, Japan moved to a floating exchange rate system. The current exchange rate of the yen, when measured by the real effective exchange rate, which roughly indicates the international competitiveness of Japanese businesses, is about 30 percent below the average rate over the nearly half-century since 1973. This shows that the yen is significantly depreciated.

According to textbook theories, a policy of lowering the value of the national currency means reducing in relative terms the price of production elements as denominated in the national currency. This is nothing short of a beggar-thy-neighbor policy. In other words, we are "dumping" the nation’s labor force.

The International Monetary Fund prohibits operations to depreciate the exchange rate of national currency for the purpose of creating an advantage for the nation’s foreign trade. Group of 20 finance ministers and central bank chiefs have repeatedly agreed that member countries need to avoid competitive depreciation of their currencies.

Japan has consistently argued that the yen’s depreciation is not the result of exchange rate manipulation but an outcome of monetary policy designed to boost domestic demand. Even if the weaker yen is indeed an unintended result of a policy measure, a long-term depreciation of the yen could in the end gradually sap the nation’s economic vitality. Sustained dumping of the nation’s labor force can hardly be considered a policy to make the economy stronger.

In Japan, which achieved its postwar reconstruction through the manufacturing factory model — that is, through exports — popular sentiment still backs the belief that a weak yen is good and a strong yen is bad. But Japan is a country with large domestic demand, and the weight of external demand on its economy is quite low, ranking 186th of 207 countries in 2017.

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Author: First Adviser

First Adviser

Member since: Sep 23, 2019
Published articles: 3

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