Why are equity investors talking about Japan?
The cyclical/defensive trade-off
A quick refresher
The chart the bears are worried about
So far, so what? Some investors believe that the balance between the two types of stock reveals much about how investors see the economic cycle playing out.
· When investors are confident they will tend to favour cyclicals over defensives
· When investors are growing nervous they will favour defensives over cyclicals
It is the latter that some observers say we are starting to see in Japan;