Nikkei experts speculate on 40000 next target as NISA program boosts rally

2024.02.22 00:40

Nikkei experts speculate on 40000 next target as NISA program boosts rally

By Kristina Sobol  

Budrigannews.com – On Thursday, the Nikkei share average soared to an unprecedented high, eclipsing its previous peak in 1989. This remarkable surge has been fueled by a combination of factors, including attractive valuations, corporate reforms, and investment flows diverted from the tumultuous Chinese stock market.

Analysts and investors have weighed in on this historic event:

• TSUTOMU YAMADA, SENIOR MARKET ANALYST, AU KABUCOM SECURITIES, TOKYO:
  For traders, this marks a pivotal moment, heralding a new era. It signals a shift away from deflationary pressures, opening up a world of opportunities. Despite its growth, the Nikkei average remains an attractive investment, with room for further appreciation.
• BART WAKABAYASHI, BRANCH MANAGER, STATE STREET, TOKYO:
  Bubble-like conditions are emerging, yet custody data reveals a lack of aggressive buying by real-money investors. Local money may be driving this rally, possibly influenced by the NISA initiative. While foreign investment is certainly present, its extent may be exaggerated. Tokyo’s real estate market reflects this inflated sentiment.
• AYAKO SERA, MARKET STRATEGIST, SUMITOMO MITSUI TRUST BANK, TOKYO:
  Price volatility is possible as adjustments occur, but a sustained downtrend is unlikely. The Bank of Japan’s monetary policy framework will play a crucial role in shaping future stock prices. If negative interest rates are lifted to zero, the impact on stock prices may be minimal, as markets have already anticipated such a move.
• TOHRU SASAKI, CHIEF STRATEGIST AT FUKUOKA FINANCIAL GROUP. EX JPMORGAN, BANK OF JAPAN, TOKYO:
  This peak is undeniably impressive and historic, but its economic significance is limited. The weak yen has contributed to rising EPS, but underlying economic fundamentals remain challenging. The government’s recent economic stimulus measures, including increased fiscal spending, may provide some support to the stock market.

In addition to these expert perspectives, several other factors have contributed to the Nikkei’s remarkable performance:

• Abenomics, the economic policies of Prime Minister Shinzo Abe, has aimed to revitalize Japan’s economy through monetary easing, fiscal stimulus, and structural reforms. These efforts have helped to improve corporate profitability and boost investor confidence.
• Increased global risk appetite has also played a role. With low interest rates and sluggish growth in many developed economies, investors have been seeking higher returns in emerging markets and Japan.
• The COVID-19 pandemic has had a mixed impact on the Japanese economy. While some sectors have been adversely affected, others, such as technology and healthcare, have experienced growth. The government’s response to the pandemic, including fiscal and monetary stimulus, has also helped to support the economy and stock market.
• Japan’s aging population and declining workforce pose long-term challenges for the economy. However, the government has taken steps to address these issues, including promoting immigration and encouraging older workers to remain in the labor force. The Nikkei index’s resurgence has prompted market experts to speculate on its potential trajectory and underlying catalysts. Tony Sycamore, a market analyst at IG in Sydney, believes the Nikkei’s next target could be the 40,000 level. He posits that a surge in momentum and positioning could lead to a rapid climb toward 42,000 in the short term.

Richard Kaye, a portfolio manager at Comgest in Tokyo, highlights two key factors that differentiate Japan from other markets: its historically low currency and its large domestic investor base. He suggests that these factors could propel the Nikkei beyond valuations and earnings expectations. Kaye also notes the potential impact of the new NISA program in attracting domestic investment to Japanese equities.

Shoki Omori, chief Japan desk strategist at Mizuho Securities, predicts a continued rally driven by foreign investors’ anticipation of domestic support through the NISA program. He emphasizes the attractiveness of Japanese stocks, coupled with aggressive buying, as catalysts for growth. Omori also observes that weak Chinese data could lead to increased Asian investment in the Nikkei.

Andrew Sheets, global head of corporate credit research at Morgan Stanley in London, acknowledges that Japanese share positions are not overly crowded. However, he raises the question of whether the market can sustain its strength if the currency stabilizes. Sheets suggests that some sectors may benefit from a modest yen appreciation, indicating a favorable outlook for Japanese stocks despite currency fluctuations.

Overall, these experts express optimism about the Nikkei’s prospects, attributing its rally to a combination of macroeconomic factors, investor sentiment, and geopolitical dynamics. While they acknowledge potential challenges, they believe that the Japanese market has significant upside potential.