Japanese equities perk up (page 2 of 2)

Companies accounting for almost two-thirds of the value of Dow Jones Stoxx 600 technology index will announce earnings during the coming week.

Among the biggest components, Nokia, the world's biggest mobile-phone on Friday. Royal Philips Electronics NV, Europe's thirdlargest producer of semiconductors, and ASML Holding NV are scheduled to report on Tuesday and Wednesday. Following the strong rally since March, the trailing dividend yield for DJ Euro Stoxx 50 has dropped to 3% from 3.7%.

However, at the same time, short-term interest rates have continued to fall. As a result, the current proxy Europe short rate of around 2.7% is now below the yield that can be obtained from equities.


Japan

Japanese stocks rose for the second week on better than expected economic data. Following BOJ's Tankan report, last week's machinery orders and Economy Watcher index showed greater-than-expected recovery.

While the Japanese market has rallied strongly driven by strong foreign buying as we expected, the short-term overbought technical conditions suggest some consolidation could occur before another leg up. Net purchases by foreign investors in the first week of July were the highest year to date and 12th straight week of net purchases.

However, unwinding of cross-shareholdings is expected to increase after general shareholders' meetings at end of June. Share sales by banks, insurers and non-financial corporations all picked up in recent weeks.