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Tuesday, October 19, 2021
Japan - Election Seasonality
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The final quarter of the fiscal year could be strong for Japanese stocks due to parliamentary elections. Fumio Kishida, the prime minister, dissolved the lower house on Thursday, setting up a vote for new lawmakers later this month. A seasonality analysis concludes that the local stock markets usually rise after the parliament is dissolved. In 2021, both domestic and foreign investors have been pouring money into Japanese investments, especially stocks.
Japan is a world leader in manufacturing electrical appliances, automobiles, ships, machine tools, machinery, and chemicals. With the world economies all set to reopen in full swing, the economy is set to benefit. As visible in the seasonality table below, the Nikkei index is heading into a seasonally strong period, with 10-year average gains of 2.37%, 4.57% and 1.02% in October, November, and December respectively. The final quarter has historically been the strongest of year over the past decade, especially with November registering growth for the last nine years to 2020.
Date: 19th Oct 2021
Empirically, the Nikkei Index has witnessed gains after the parliament was dissolved and before the election dates. The chart below depicts the change in price of Nikkei for a period of 7 trading days, starting 3 days after the parliament was dissolved till the next 10 trading days.
|Date of Dissolution||Change in NKY Index|
Date: 19th Oct 2021
Out of the last 15 elections, the Nikkei index has experienced a positive price change 13 times between +3 days & +10 days after the parliament was dissolved. The results depict investor sentiments towards the equity market. The hit ratio of the study is 87%, along with the potential max loss being -1.8%. The average price change of Nikkei over the last 15 events is 1.4%.
This year, the parliament was dissolved on Thursday (14th Oct 2021).
The third trading day after the dissolution is: Tuesday (19th Oct 2021).
The tenth trading day after the dissolution will be: Wednesday (28th Oct 2021).
Risks and Assumptions for Back-tested trading strategies
Data Source: Bloomberg
Data as of : 19/10/2021
Arun Leslie John
Chief Market Analyst
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