Central Banks and Stock Markets
2019-12-25 10:07


One of the most fascinating aspects of current markets around the world is the degree to which central banks appear to be influencing the movement of not only bond markets but also equity markets. The erroneous belief that higher interest rates always cause stock markets to decline and low rates always cause them to rise is widely held, so pronouncements on interest rates by central banks have added to market volatility. While we wait to see if the US Federal Reserve (Fed) will raise interest rates at its December policy meeting, you can see in the chart below that US interest rate increases haven't always resulted in lower performance for emerging markets generally. So while short-term volatility could be expected, we don't anticipate that a mild increase in US interest rates would have a significant impact on the financial markets, particularly when many other central banks around the world remain in easing mode. However, making predictions about short-term market movement is fraught with many possible errors, so it's important to keep our eye on the long-term developments.



Japan: A Case Study


Meanwhile, Japan offers an interesting case study of how monetary easing has affected its equity market and economy. The objectives of increasing inflation expectations with lower rates has not worked in Japan, so it is now taking a different tack by attempting to raise stock prices—thus putting money directly in the hands of consumers—through stock market appreciation in the hopes of spurring spending. The Bank of Japan (BOJ) has been purchasing assets including exchange-traded funds (ETFs) and thus, indirectly, company stocks.


While the BOJ elected not to cut interest rates or expand its current stimulus program further at its November policy meeting, BOJ Governor Haruhiko Kuroda said the central bank is ready to deploy “all available means” to hit its 2% inflation target, which means more actions to stimulate the economy may be coming. From a policy perspective, efforts to weaken Japan's currency by lowering interest rates to negative levels has not worked and has attracted criticism, particularly from financial institutions. It seems that now the emphasis will be on weakening the yen as well as propping up stock prices. In the parlance of the gambling community, the BOJ has become the biggest “whale” in the market, holding a large share of stocks listed on the Tokyo Stock Market. Therefore, many investors have become increasingly focused not on company fundamentals but on the BOJ's daily purchases. The central bank is buying ETFs according to the market weights of Japan's Nikkei 225, the Topix and the smaller JPX 400 indexes. A decline in the yen versus the US dollar has typically caused Japanese stocks to rally (and a rise in the yen has typically caused stocks to fall), but this relationship has weakened with the BOJ making asset purchases.

虽然,日本央行在十一月政策会议上并未选择减息或进一步扩大目前的刺激计划,但日本央行行长黑田东彦表示,央行正准备利用“一切可用的方法”实现其2%的通胀目标,这意味着央行未来可能会推出更多刺激经济的措施。 从政策方面来看,通过降低利率至负值让日元贬值的做法并未奏效,而且还遭人诟病,尤其是来自金融机构的批评。目前看来,重点似乎是让日元贬值以及支持股价。用赌博界的话来说,日本央行已成为市场中最大的“鲸”,持有东京证券交易所很大比重的上市股票。因此,很多投资者越来越关注的不是公司的基本面,而是日本央行的每日购买额度。日本央行正根据日经225指数、东证股价指数和更小的JPX 400指数的市场比重购买ETF。日元兑美元下跌通常会导致日本股票反弹(日元上升通常会导致股票下跌),但这种关系已随着日本央行实施购买计划而变弱。

The BOJ buying program is designed to favor companies with good corporate governance such as those that have complied with the Tokyo Stock Exchange's corporate governance code by reducing or eliminating corporate cross holdings by selling their holdings in other operating companies. In any case, it's estimated that the BOJ now owns about 60% of Japan's domestic ETFs and it's expected the BOJ could continue purchasing more ETFs through 2017.1 The government pension investment fund has also announced that it will increase its allocation to domestic equities so that the pension fund's purchases could potentially rival those of the central bank.

日本央行的购买计划旨在利好企业治理完善的公司,例如那些遵从东京证券交易所企业治理守则的公司,即通过出售所持有的其他运营公司的股票来降低或消除企业交叉持股的公司。无论如何,据估计,日本央行现持有日本国内约60%的ETF基金,而且预计日本央行会继续在整个二零一七年购买更多的ETF基金。[1] 政府退休金投资基金亦已宣布其将增加国内股票的配置,因此,退休基金的购买可能会与央行形成竞争。

The BOJ has become a top shareholder in the one of the world's largest equity markets and already is one of the top five owners of 81 companies listed on Japan's Nikkei 225 Index.2 The central bank is also on its way to becoming the number one shareholder of more than 50 of those firms, according to various estimates. Market bulls are happy with the BOJ purchases, but opponents say the central bank is artificially inflating valuations and ironically discouraging companies from becoming more efficient. Interestingly, Japan's Nikkei 225 Stock Average is actually down more than 8% year-to-date, although one might argue its fate could have been worse without central-bank buying.3 In the chart below, you can see easing moves have not resulted in long-term positive performance in all cases for Japan's equity market.

日本央行已成为全球最大股市之一的最大股东,并已成为日本日经225指数中81家上市公司的前五大持股人之一。[2]根据多方估计,央行在不久的将来亦会成为50多家上述公司的第一股东。市场多头对日本央行的购买行为乐见其成,但空头表示央行在人为地鼓吹估值,并讽刺该行为是在阻止各公司变得更高效。有趣的是,年初至今日本日经 225 股价平均指数实际下跌超过8%,但有人可能会抗辩说,若没有央行的购买行为,其跌幅会更大。[3]从下图可以看到,在所有情况下,宽松政策都没有让日本股市有长期的正面表现。


Of course, the BOJ's program is not unique. The Bank of England has a corporate debt purchase program worth about US$13 billion, and the European Central Bank has a similar program. There are certainly other such examples throughout market history, including during the Asian financial crisis of the late 1990s.


One worry is that as a result of the BOJ's purchase program, the free float of companies will dry up and it will become hard for investors to trade in stocks. The falling liquidity could then result in more volatility. Another concern is that other central banks may follow the BOJ's lead and transform equity markets around the world. Of course, for some equity holders this could be a boon but the downside is the potential for a bust that could follow.

市场担心的一点是,日本央行的购买计划将会导致公司的公众持股量逐渐降低,同时会让投资者难以买卖股票。 流动性降低会导致更多的波动。市场的另一个担忧是其他央行会跟从日本央行的做法,从而改变全球各地的股市。当然,这对部分股票持有人而言会是一个福音,但缺点是破产可能会尾随而至。

Emerging-Market Impact


As many investors around the world are searching for yield in an environment of low or negative interest rates, emerging-market equities and debt have been attracting investor dollars. The money central banks are providing is flowing out into markets globally, and emerging markets in general continue to offer a more compelling growth story than developed markets. For example, investors (many thought to be Japanese) poured a record US$1.45 billion in rupee-denominated Indian Uridashi notes this year, and India's stock market is up more than 5% year to date.4 India boasts one of the fastest-growing economies in the world, with gross domestic product growth expected at 7.6% this year.5 Growth in emerging markets has been generally outpacing that of developed markets this year, and so has equity market performance.


Just one final thought on the recent US election, which could also bear some implications for monetary policy down the road as well as for emerging markets: If successfully enacted, the proposed expansionist policies of newly elected US President Donald Trump could result in faster growth in the United States; since the United States is the world's largest economy, this, in turn, could have a positive impact on global growth. Trump has pledged to lower corporate taxes and increase government infrastructure spending, which would likely result in higher US corporate earnings. That additional money would then be available for US companies to potentially invest globally. I believe this would likely include investments in emerging markets.


While there can be unexpected shocks, we remain optimistic about the outlook for emerging markets in the year ahead.


Comments, opinions and analyses are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. Because market and economic conditions are subject to rapid change, comments, opinions and analyses are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy.


Important Legal Information


This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. The companies and case studies shown herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton Investments.

本文只供一般性参考,不应被视为个人投资建议,或推荐投资者购买、出售、持有任何证券及采纳任何投资策略的建议或招揽,不构成法律或税务咨询。本文所列的公司和案例研究仅供说明;富兰克林邓普顿(Franklin Templeton)所建议的任何投资组合目前尚未确认是否存在投入。

The opinions are intended solely to provide insight into how securities are analyzed. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio. This is not a complete analysis of every material fact regarding any industry, security or investment and should not be viewed as an investment recommendation. This is intended to provide insight into the portfolio selection and research process. Factual statements are taken from sources considered reliable but have not been independently verified for completeness or accuracy. These opinions may not be relied upon as investment advice or as an offer for any particular security. Past performance does not guarantee future results.


The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market.


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What Are the Risks?


All investments involve risks, including the possible loss of principal. Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments. Investments in emerging markets, of which frontier markets are a subset, involve heightened risks related to the same factors, in addition to those associated with these markets' smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. Because these frameworks are typically even less developed in frontier markets, as well as various factors including the increased potential for extreme price volatility, illiquidity, trade barriers and exchange controls, the risks associated with emerging markets are magnified in frontier markets. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions.


To get insights from Franklin Templeton delivered to your inbox, subscribe to the Investment Adventures in Emerging Markets blog.

有意从富兰克林邓普顿(Franklin Templeton)的邮件中了解更多信息,请订阅“新兴市场的投资冒险”(Investment Adventures in Emerging Markets)博客。

For timely investing tidbits, follow us on Twitter @FTI_Emerging and on LinkedIn.

有意及时投资的话,请在推特上关注 @FTI_emerging和LinkedIn。

The technology industry can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, competition from new market entrants as well as general economic conditions. The technology sector has historically been volatile due to the rapid pace of product change and development within the sector.




1. Source: Bloomberg, August 14, 2016, “Bank of Japan's Unstoppable Rise to Shareholder No. 1.”  There is no assurance that any estimate or forecast will be realized.

[1] 资料来源:彭博资讯,二零一六年八月十四日,《日本央行成为最大股东之势势不可挡》(“Bank of Japan’s Unstoppable Rise to Shareholder No. 1”)。不保证任何估计或预测就会实现。

2. Ibid.

[2] 同上

3. Source: Bloomberg, as of November 1, 2016. Indexes are unmanaged and one cannot directly invest in an index. They do not reflect any fees, expenses or sales charges.

[3] 资料来源:彭博资讯,截至二零一六年十一月一日。指数未经管理,不能直接投资指数。指数不反映任何费用、开支或认购费。

4. Source: Bloomberg, October 25, 2016, “Japanese Fleeing Negative Rates Take Refuge in Indian Yields.” The S&P BSE SENSEX is India's most tracked bellwether index. It is designed to measure the performance of the 30 largest, most liquid and financially sound companies across key sectors of the Indian economy that are listed at BSE Ltd. Indexes are unmanaged and one cannot directly invest in an index. They do not reflect any fees, expenses or sales charges. Past performance is not an indicator or a guarantee of future performance.

[4] 资料来源:彭博资讯,二零一六年十月二十五日,《逃离负利率的日本投资者到印度债券避难》(“Japanese Fleeing Negative Rates Take Refuge in Indian Yields”)。标普孟买证券交易所指数(S&P BSE SENSEX)是印度最具追踪效应的领先指数。该指数旨在计量印度经济的各个主要行业中,于孟买证券交易所上市的30间最大、最具流动性而且财务稳健的公司的表现。指数未经管理,不能直接投资指数。指数不反映任何费用、开支或认购费。过往表现并非将来结果的指示或保证。

5. Source: IMF World Economic Outlook database, October 2016. There is no assurance that any estimate, projection or forecast will be realized.

[5] 资料来源:国际货币基金组织《世界经济展望》数据库,二零一六年十月。不保证任何推测、估计或预测会实现。

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