Why I’m sticking with Japan
Last week the yield on UK shares (4.6%) exceeded the yield on ten-year government bonds (4.4%). You might think that isn’t much of a big deal. But to those who watch technical market signals, it is: the last time it happened was in March 2003, the month that marked the end of Britain’s post-tech-crash bear market. Between then and September last year, when the equity market peaked, the FTSE 100 rose an astonishing 105%.
So might the “cross over” be a buying signal this time too? I doubt it. Anyway, I’ve been caught out by this one before. It happened in Japan in April this year, prompting me to write a story for the magazine headlined “Japan looks good: now’s the time to buy” and to point out that historically, on every occasion that the dividend yield on the Topix index had risen above the ten-year Japanese Government Bond yield it had marked “the start of a major rally”. Whoops. The Topix has fallen 13% since. Clearly, the gilt dividend cross isn’t quite the infallible signal it is put about as being.
Still, while I’ve clearly been very wrong on Japan, I’m not quite prepared to give up yet.
• Read the full editor’s letter here: Why I’m sticking with Japan