Nikkei recessive exuberance

July 7, 2009

If the Nikkei’s spring rally from multi-decade lows whet appetites for a “Japan is back” soaring benchmark, it’s time to check that excessive exuberance, says Deutsche Securities’ Naoki Kamiyama, who sees a top of 10,500 yen for the Nikkei 225 and 1,000 for the Topix over the next year.

No one was expecting a return to 30,000 or even 20,000 for the Nikkei, which has found upside tough after a recent crack above the 10,000 line. But the veteran of many years of Japan asset-watching says market optimism is now meeting reality, with gains of less than 10 percent from current levels likely.

“Earnings are not on the rise, so the price-to-earnings ratio will remain high,” he told the Reuters Japan Investment Summit. “We’re at an important turning point where stocks have priced in a certain recovery, but the extent of that is not enough.”

After the worst year in Japanese trading history that drove the Nikkei down 42 percent amid a global financial crisis that left far greater carnage than just equity prices, a relatively moribund Nikkei seems a minor concern. But there are some buys out there, Kamiyama says.

He thinks financials may outperform with recovery in the sector, along with exporters, which will enjoy a mildly weaker yen. Not surprisingly, resource-linked firms will remain in favour, as world demand rekindles.

So if Japan’s market is capped, what is the strategy if global recovery does emerge? Buy Japanese exporters, shippers and trading firms now, then switch to China plays once a more pronounced recovery is confirmed. And — unlike the Nikkei — be aggressive.


Photo credit: REUTERS/Yuriko Nakao

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