Goldman Cuts Topix Forecasts on ‘Unanticipated Weakness’

Goldman Sachs Group Inc. lowered its forecasts for Japanese stocks, citing “the market’s unanticipated weakness and limited near-term catalysts.”

The brokerage reduced its three-month target for the Topix index to 1,200 from 1,350, Chief Japan Strategist Kathy Matsui wrote in a note dated March 20. The new forecast is 3.1 percent higher than the gauge’s level of 1,163.63 at the trading break in Tokyo today. Goldman Sach cut its six-month Topix forecast to 1,300 from 1,375, while maintaining its 12-month target at 1,450 on expectations that earnings per share will rise 21 percent in the fiscal year starting April.

The Topix slumped 11 percent this year through yesterday, trailing all other major developed markets tracked by Bloomberg, after surging 51 percent in 2013. The losses are due to “a combination of overseas and domestic factors,” with worries about foreign selling of Japanese shares also weighing on the market, Goldman Sachs said.

Overseas investors sold 975 billion yen ($9.5 billion) of Japanese stocks in the week ended March 14, the most on record after 1.12 trillion yen following the “Black Monday” stock-market crash in 1987, data from the Tokyo Stock Exchange show.

Japan’s stock rout has been spurred by weaker-than-expected U.S. economic data, China growth jitters, the Ukraine crisis, Japan’s April sales-tax increase and disappointment that Prime Minister Shinzo Abe’s deregulation and structural reforms “may not deliver any substance,” according to Goldman Sachs.

The market should regain momentum in the medium-term, according to the note. The Bank of Japan may expand its monetary easing in the quarter ending June after assessing the impact of the sales-tax increase, Goldman Sachs said.

The brokerage raised its price target for Japanese shares six times in 2013 on expectations the government would make progress on measures such as cutting corporate taxes, restarting nuclear reactors and forging a deal on the Trans-Pacific Partnership free-trade agreement.

Before it's here, it's on the Bloomberg Terminal.