Nikkei 225 Tops 20,000 as Investors Take Second Look at Japan

  • Investors recognizing life in Japan economy: Citi Private Bank
  • Tokyo Stock Exchange Second Section Index advances to record

The Nikkei 225 Stock Average breached 20,000 for the first time since December 2015, as a weaker yen and positive economic data fueled a rally that’s lured foreign investors back to the world’s third-largest market.

The Nikkei 225 rose 1.6 percent to close at 20,177.28, bringing its gain since an April low to 11 percent. The rally came as the nation’s corporate profits climbed to a record and attracted foreign investors, who snapped up more than $13 billion in Japanese stocks in eight straight weeks through May 26 after being net sellers earlier in the year. Data released this week showed Japan’s unemployment rate held at a two-decade low, and capital spending for the first quarter of the year topped estimates.

“A lot of people are recognizing that the Japanese economy is showing a bit more life,” said Ken Peng, a Hong Kong-based investment strategist at Citi Private Bank. “Equities in Japan are doing better than what dollar-yen is suggesting it should do. It’s an improvement and people are looking more macro-bullish of Japan.”

Click here for an overview of Japan’s economic revival

All but two of the Topix index’s 33 industry groups have climbed since the April 14 closing low. Tokyo Electron Ltd., Showa Denko and Shiseido Co. have posted the largest rallies on the Nikkei 225 in that span, with each stock rising at least 32 percent. 

The Topix also gained 1.6 percent Friday, with trading volume 23 percent above the 30-day average. The yen weakened versus the dollar after data from the ADP Research Institute showed U.S. private payrolls rose by 253,000 in May, beating estimates. Non-farm payrolls are scheduled to be announced later Friday.

“The private hiring data was better than market expectations and leading to some confidence in the market,” said Hideyuki Ishiguro, a senior strategist at Daiwa Securities Co., referring to U.S. figures. “Excessive concerns toward tonight’s jobs data are receding. Globally, Japanese stocks’ relative cheapness is looking attractive for investors.”

The Topix’s forward price-to-earnings ratio was at 14.39, against the S&P 500 Index’s 18.69. Net income at Japanese companies rose 16 percent year-on-year in the 12 months ended March, while 77 percent of firms beat their forecasts, according to CLSA Ltd. Most companies recorded higher sales and a better bottom line than analysts expected.

But some sound a note of caution. Japanese equities are still one of the worst-performing markets in 2017 as investors remain concerned over domestic corporate earnings growth in the coming 12 months, Toru Ibayashi, head of Japanese equities at UBS’s wealth management unit, wrote in a note to clients Thursday. Japan Inc.’s earnings growth for the next two years is likely to be lower at around one to two percent, against a market consensus of around 10 percent, according to Ibayashi.

Summary

  • Electronics makers and banks provided the biggest boosts to Topix
  • Yen -0.2% to 111.61 per dollar
  • Dowa Holdings +5.3%; raised to neutral from underperform at SMBC Nikko
  • Idemitsu Kosan +4.6%; raised to buy at Okasan, to neutral at Citi
  • Kobe Steel +6.8%; raised to neutral from underperform at SMBC Nikko
  • Kubota +4.8%; raised to buy from hold at Jefferies
  • Mitsubishi Electric +5.2%; raised to neutral from sell at Goldman Sachs
  • Showa Shell +3.9%; raised to buy at Citi and Okasan

For more on Japan markets:
Exporters Absent as USD/JPY Rises Amid Nikkei Gains, Trader Says
Yen Falls as Nikkei Rally Saps Haven Demand Ahead of U.S. Jobs
Dai-Ichi’s Protective Sees Higher Rates Easing Friction on Deals
SoftBank’s Satellite Merger Disintegrates as Debt Deal Rejected

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