Japan’s Nikkei 225 Stock Average (NKY) may surge 23 percent by the end of the year as profits grow and investors seize upon the lowest valuations of any major Asian benchmark, said Mitsubishi UFJ Morgan Stanley Securities Co.’s Chief Equity Strategist Chisato Haganuma.
The shares are cheap, especially when cashflow and dividends are taken into consideration, said Haganuma in an interview in Kuala Lumpur June 13. Earnings per share for the Nikkei will expand 66 percent in the next 12 months, according to data compiled by Bloomberg. The gauge has a price-to-book ratio of 1.08, compared with a multiple of 1.2 for the regional MSCI Asia Pacific Index, the data show.
“Japanese stocks are now bottoming out,” Haganuma said. “I’m quite bullish. You may find better investment opportunities in the Tokyo market rather than emerging Asia. Asian economies enjoy very robust economic growth, I totally agree, but on the other hand, if you look at cashflow of the individual company, some cases, not so good.”
The Nikkei has fallen 16 percent from this year’s high on March 27 as Europe’s debt crisis intensified, driving up the yen and threatening exports at a time when growth in the U.S. and China shows signs of slowing. The broader Topix Index dropped on June 4 to its lowest level since 1983.
Japanese companies are struggling with the legacy of last year’s natural and nuclear disasters, with the Nikkei 225 trading 18 percent below the level it was prior to the country’s biggest earthquake on record.
Haganuma forecast the Nikkei will climb to 10,500 by the end of 2012. The gauge closed at 8,568.89 yesterday. The Nikkei 225 will end the year at 10,700, according to the median estimate of 17 stategists surveyed by Bloomberg.
Singapore’s Straits Times Index trades at 1.26 times the value of net assets while companies in Hong Kong’s Hang Seng Index are valued at 1.31. Gauges in Shanghai, Mumbai and Sydney all trade higher. A reading below 1 means a firm can be bought for less than the value of its assets.
Mitsubishi UFJ Morgan Stanley Securities is a joint venture between Mitsubishi UFJ Financial Group Inc. and Morgan Stanley.