Global investors are increasingly favoring Japanese equities, and leading Wall Street investment banks anticipate more gains for the nation’s leading indices. The Nikkei 225 has risen, marking a 20% gain year-to-date, while the Topix (Tokyo Price Index), which has just achieved its highest level since July 1990, has been on the rise.
Goldman Sachs analysts point out that foreign investors continue to hold underweight positions in Japanese equities, especially among long-term investors. They think that fundamental reforms in the economy, such as those being made by the Tokyo market to increase shareholder returns by reorganizing corporate governance rules, would boost equities in Japan. If structural transformation progress strengthens the confidence of foreign long-term investors, there is a possibility for significant inflows into the Japanese equities market.
In addition, Bank of America analysts increase their year-end projections for Japanese indices, noting the prospect for further foreign investment in cash equities and the momentum of ongoing share repurchases. They forecast a 7% increase in the Topix to 2,300 points, with a bull case for 2,400 points. With a bull case of 33,500 points, the Nikkei 225 is predicted to grow by 4% to 32,500 points.
The analysts stress that an established inflationary environment and high return-on-equity (ROE) might push Japanese equities closer to their 1989 peak. The Topix now has a 12-month ahead ROE of 8.8%. They come to the conclusion that Japanese equities still have opportunity for additional gains and are in line with underlying fundamentals as long as profits keep rising.
A possible debt limit agreement between U.S. President Joe Biden and House Speaker Kevin McCarthy and a declining yen, which has further stoked market confidence, are just two examples of the reasons contributing to the favorable feeling toward Japanese equities. The market surge, which is being supported by buybacks and prospective foreign inflows to cash stocks, is anticipated to last the whole year.
Overall, experts have a positive prognosis for Japanese equities over the medium term, anticipating possible increases and underlining the significance of continuing structural improvements and rising profitability.
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