Japan stocks volatile in near-term, but long-term outlook bullish-Citi

Japanese stocks are expected to see some instability in the next month, but are primed for a bullish long-term outlook, Citi said in a note, citing strong earnings and improving economic conditions. 

Citi noted that investors remained skeptical towards Japanese markets amid uncertainty over Japanese monetary policy and the U.S. economic outlook. 

But the brokerage flagged improved fundamentals on a “micro and macro basis.” Japanese earnings showed growth in the April-June quarter despite volatility in foreign exchange markets, specifically the yen. 

The yen is also not expected to appreciate as strongly as initially expected, which benefits local earnings. 

Resilience in earnings presents the possibility of Japanese companies hiking their outlook with the release of interim results in October. Signs of improved personal consumption also presented stronger domestic demand. 

Citi said a growing number of Japanese companies were announcing or increasing share buybacks, signaling that management was giving “corporate attention to the stock market,” which could be seen as a positive. 

Japanese stocks saw a sharp drop in the beginning of August, with the Nikkei 225 and TOPIX entering a bear market amid concerns over interest rate hikes by the Bank of Japan.

While they recouped most of these losses by late-August, further gains were held back by persistent caution towards the country, especially as the BOJ reiterated its hawkish outlook. 

“We think maintenance of a bullish stance on Japan equities is appropriate on a view of around six to twelve months even if instability persists in the near term,” Citi analysts wrote in a note. 

The brokerage said that the prospect of near-term guidance hikes and large share buybacks presented value in Japanese markets.

Source: Investing.com