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Next Japanese Tankan survey may confirm market uptrend

TankanEnlarge GraphAside from the United States, Japan produces several economic indicators that are well recognized world-wide — one of which is the Tankan survey. Part of the Tankan survey collects data on whether business managers believe the economy will improve or decline. When business conditions increase, it often points to an improving macro environment.

Calculation of the Business Confidence Indicator 

On December 14th of 2012, the Bank of Japan released a report showing that business confidence among medium and large manufacturing enterprises in Japan fell to -20% and -10%, respectively, for the last three quarters of 2012. It is important to note that the percentage is not an indication of change from the previous months or years. The confidence index is calculated as the percentage of respondents who believe business outlook will improve minus those who believe the outlook will worsen. Historically, economic improvements have followed rising business confidence.

Some question the recent uptrend in global markets

Since the beginning of 2013, global markets have continued their uptrends following last year’s announcements of stimulus packages. Japan announced the largest amount of  ~$224 billion in fiscal, local and private spending on January 11th. Although critics and skeptics have pointed out that a big portion of the stimulus was already planned for Japan (that has been spending roughly 3x the current package since 1998), we will know if the recovery is real when the Tankan report is released in early April 1.

Positive Tankan report will support shipping and Japanese ETF

If the Tankan report improves, it will support shipping companies. After all, Japan is the third largest GDP in the world, heavily reliant on the manufacturing industry and export, and is one of the top 10 countries by trade volume. Some examples of companies that will benefit are Teekay Corp. (TK), Diana Shipping, Inc. (DSX) and Ship Finance International Ltd. (SFL). Diversified ETFs such as the Guggenheim Shipping ETF (SEA), an ETF that invests in leading shipping firms worldwide, and the iShares MSCI Japan ETF (EWJ) will benefit, too.

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