Japanese equities have suffered “unfairly” in the last quarter, according to Nikko Asset Management, with the asset class set to perform strongly over the next six months.
Nikko Asset Management chief global strategist, John Vail, said a weaker yen and improved global growth will support a “strong rebound” in Japanese equities in the coming quarters.
“We believe that Abenomics is working well, especially for corporations, with [fourth quarter] pre-tax profit margins (on a four quarter average) remaining at historical highs, with the non-manufacturing sector surging to a new high,” Mr Vail said.
After-tax profits, he said, have also improved considerably due to a lower corporate tax rate.
“Abenomics is, thus, working very well for long-term domestic equity investors too (even after recent declines), and should continue to do so,” he said.
Mr Vail expects a rise in earnings estimates to produce a 6.2 per cent return in US dollar terms through September 2016. He expects 10.6 per cent returns in yen terms.
“As for the developed Pacific ex Japan region, we expect major strength in both Hong Kong and Australian equities through September, as both will benefit from increased confidence in the Chinese economy.”
According to Mr Vail, Nikko AM will maintain an overweight stance in the developed Pacific ex Japan, forecasting a 9.6 per cent return in US dollar terms.
“In sum, we forecast that developed Pacific ex Japan, Japan and Europe will outperform in the next six months, while the US should underperform and, thus, deserve an underweight stance vs all other regions,” he said.
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