Market Musings 100825: Breakouts during the summer lull
This week, a short comment highlighting the 3 stock markets and sectors that continue to demonstrate strong upwards momentum as we enter the traditionally weaker summer season for global stocks.
1. Japanese stocks: TOPIX index
Following the stabilisation of the Japanese yen against the US dollar in the Y142-Y150 range and the announcement of a trade deal with the US at a 15% tariff rate, Japanese stocks have responded to this removal of uncertainty by rallying to new all-time highs. This move has been naturally been led by exporters and by tech-related stocks such as Sony and Softbank.
Japanese yen trades in a Y142-Y150 corridor against the US Dollar
Japanese stocks remain reasonably valued, exhibit profitability that is far higher today than in recent years and also now offer greater shareholder returns (dividends + share buybacks).
TOPIX index breaks to new all-time high
Euro-hedged Japan ETF has returned 11% so far this year
2. European banks sector
European banks continue to offer a strong combination of cheap valuation (on P/E, price/book value), improved profitability (on ROE) and robust shareholder returns (dividend yield + share buybacks).
Q2 results were strong across the board for European banks, continuing to power the strong upwards sector momentum that has been in place since late 2022. Loan growth is slowly accelerating, while sector consolidation is an added bonus.
The Euro STOXX banks sector (BNKE) has recently broken out of a consolidation triangle following results, showing surprisingly strong momentum even as we enter August.
Euro banks: +150% since late 2022
UK banks also continue to follow a similarly positive pattern, latterly boosted by a favourable UK court ruling over liability relating to motor finance claims, limiting the cost to the main UK banks. In the short term, Barclays seems to show the strongest momentum and remains relatively cheap even versus the European banks sector average on P/E and price/book valuations.
UK domestic banks power upwards
3. Gold and Silver miners
Gold and silver prices continue to forge ahead, with…
