June 3, 2014 6:00 pm JST

Tokyo stocks hit 15,000 level

TOKYO -- Tokyo stocks rose Tuesday, with the Nikkei Stock Average recovering to the 15,000 level for the first time in about two months since April 4. Nikkei Quick News asked three market players if they expected the average to remain at a high level.

Juichi Wako, equity market strategist at Nomura Securities: The Nikkei average will hit the 18,000 level in the latter half of this year, as Japanese stocks are being reviewed as undervalued.

I think the Nikkei average recovered to the 15,000 level because Japanese stocks are being viewed as undervalued. It has become clear that the U.S. economy has recovered from a standstill caused by the recent cold spell and the underlying strength of the U.S. economy is giving reassurance to the market. On the back of strong domestic economy even after the consumption tax hike, there is a sense of security over future corporate earnings in Japan. As Japanese stocks are starting to be undervalued based on earnings forecasts, it has become easier to evaluate positive factors, including an improvement in U.S. economic indicators, more smoothly.

     A rise in the average could lose steam for a while after it hits the 15,000 level, depending on the results of the European Central Bank's governing council meeting scheduled for Thursday and U.S. jobs data for May to be released Friday. Considering that the average expected price-to-earnings ratio of the issues listed on the Tokyo Stock Exchange's first section hovered in the range of around 14-16 last year, the Nikkei average may rise above the 15,000 level. It is expected to hit 16,000 by summer, and fully enter an upward trend to reach the 18,000 level in the latter half of this year.

 

Gentoku Kiyokawa, director at BNP Paribas Investment Partners Japan: The effect of the consumption tax hike is minor and revisable.

The main reason why the Nikkei recovered to the 15,000 level was that the index didn't fall significantly when it fell below 14,000 on May 19. Technical rebound-led buying became dominant due to a decline in concern over lower stock prices. The average is expected to hit March 7's high of 15,312 by the end of June. Comparing the situation in March before the consumption tax hike and April and May after the tax hike, the concerned decline in consumer spending was limited. Stock prices after March were sluggish due to a decline in consumption after the sales tax hike. This sluggishness was considered to be too much, and they will be revised gradually, given the current market environment. If an improvement in economic indicators can be confirmed in June, the Nikkei could even exceed 15,300.

     The index is expected to be close to last year's high of 16,291 by the end of this year, as the enhancement of Japanese companies' performance can be expected. Earnings forecasts for fiscal 2014, released by companies that close their books in March at the beginning of this fiscal year, were conservative. Some companies will certainly make upward revisions based on the recent results once the April-June period and the July-September period are over. Even if the government's growth strategy, which will be finalized in late June, is nothing new, I expect the Nikkei average to recover to the 16,000 level.

 

Tsuyoshi Nomaguchi, equity strategist at Daiwa Securities: The real economy will become the focal point.

I think the Nikkei average recovered to the 15,000 level because selling triggered by negative factors has run its course. In light of the fact that declines in stock prices were limited when the Bank of Japan put off additional monetary easing in May, the index was gradually touching bottom at the 14,000 level. I believe the environment has improved so that Japanese stocks can follow U.S. stocks smoothly when U.S. stocks hit a new high.

     I'm looking to the Japanese government's growth strategy in the short term. Tokyo is more likely to give some considerations to market expectations, and the Nikkei average is expected to rise to the mid-15,000 level by the end of this month. The next focus will be on trends in the real economy, such as how much it recovers from a decline in the April-June period due to the sales tax hike. Corporate earnings may also be revised upward gradually, which will underpin stock prices. Even though additional monetary easing by the BOJ cannot be expected, there is a strong possibility that the Nikkei average will even hit 16,500 or so by the end of September, assuming the yen will weaken against the dollar as the U.S. Fed continues to taper its quantitative easing.

(NQN)