Goldman Names NTT DoCoMo, ANA, Komatsu Among Top Picks

Reflationary measures by Japan’s new government are having a positive effect on the nation’s stock market, said Goldman Sachs Group Inc., which maintained its bullish outlook on the country.

The investment bank named NTT DoCoMo Inc., All Nippon Airways Co. and Asahi Glass Co. among stocks with the most growth potential in 2013, analysts and strategists led by Shin Horie, Kathy Matsui and Mike Warren wrote in a report yesterday. Nissan Motor Co., Komatsu Ltd. and Sumitomo Mitsui Financial Group Inc. were among shares chosen by Goldman Sachs as having the best prospects for long-term growth.

“While the market appears overbought near-term, we retain our bullish stance over the medium-term, and believe domestic and global macro tailwinds will continue to support further upside in 2013,” the analysts wrote. The ruling Liberal Democratic Party “promised to implement an emergency economic stimulus package right away and implement seamless economic policies, and so far it is fulfilling this promise.”

The Topix Index capped the longest weekly advance since 1989 on Jan. 11 as the new ruling LDP announced a 10.3 trillion yen ($117 billion) fiscal stimulus package and efforts to drive down the yen. Japan’s broadest measure of equity performance rose 24 percent from Nov. 14, when national elections were announced, through Jan. 11. The yen fell 10 percent against the dollar in the period.

Accommodative Stance

The brokerage expects the next Bank of Japan governor, who will be appointed in April, to be more “accommodative” with monetary policy than current chief Masaaki Shirakawa, according to the report. Prime Minister Shinzo Abe has called for the nation’s inflation target to be doubled to 2 percent and said on Jan. 13 that he wants a new BOJ governor who can push through “bold monetary policy.”

Among stocks that are the most attractive, Goldman Sachs highlighted Nissan for its “strong commitment to growth/emerging markets” and its strong presence in China.

Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc., Japan’s biggest banks, are also recommended as they may buy back shares or raise dividends while seeing steadily loan growth overseas, according to the Goldman Sachs report.

Growth Projection

While Japan entered a technical recession last month, the economy may recover through March and remain stable thereafter, Goldman Sachs analysts wrote. The brokerage raised its estimate for Japan’s economy to grow by about 2 percent in fiscal year 2013, an increase of 0.7 percentage points, due to the government’s expansion of public works spending as well as its economic stimulus package.

Domestic consumer demand is likely to surge through December 2013 ahead of the consumption tax increase, according to the report.

Downward earnings revisions by Japanese companies have troughed, and with an increase in global growth as well as the prospects of more stimulus ahead in Japan, the brokerage expects earnings per share to grow 33 percent this fiscal year and 25 percent in fiscal year 2013. Return on equity for companies on the Topix may rise to a post-bubble era high of 9.4 percent by the end of fiscal year 2014, according to Goldman Sachs. The Topix has fallen about 69 percent from the height of Japan’s asset bubble in 1989 through yesterday.

Still, stocks on the Topix trade at 18.4 times estimated earnings, compared with about 13.3 times for the S&P 500 and 10.9 times for the Stoxx Europe 600.

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