Daiwa CEO Says Worst Is Probably Over for Japanese Stock Market

(Bloomberg) -- The worst is probably over for Japanese stocks as long as the global economy avoids slipping into a recession, according to the CEO of the nation’s second-biggest brokerage.

“It is probably rational to think that prices have reached the bottom,” Daiwa Securities Group Inc. Chief Executive Officer Seiji Nakata said in an interview Wednesday, a day after the Nikkei 225 Stock Average slid into a bear market. Key indicators such as price-earnings ratios have fallen enough, and underlying economic conditions have shown no clear signs of deterioration, he said.

The Nikkei 225 has tumbled 20 percent from a 27-year high on Oct. 2, fueled by concerns ranging from global trade tensions to questions over the Trump administration’s stewardship of the U.S. economy. That bodes poorly for Japanese securities firms including Daiwa and Nomura Holdings Inc., which have seen their mainstay retail brokerage operations slump this fiscal year.

But Nakata, 58, warned against undue pessimism, saying Japanese stocks will rebound if the global economy can expand at 3.5 percent or so, helping companies in the country achieve pretax profit growth of 7 percent to 8 percent. He expects the Nikkei 225 to reach around 26,000 in the year starting April, in what would be a strong rally from the current 19,327 and a level not seen since 1991.

“A low will be around where we stand right now” unless the world enters a recession, he said.

Still, Nakata said Japanese investors may become less enthusiastic about buying shares through initial public offerings, following a plunge in SoftBank Corp.’s newly listed stock. Daiwa was among the main underwriters of the shares, according to people familiar with the matter.

“It is hard to deny that the momentum of investments in IPOs has cooled a bit,” although Japan’s market for new stocks is unlikely to shrink, he said. SoftBank raised 2.65 trillion yen ($24 billion) in the offering of its telecom unit before the shares dropped 15 percent on their first day of trading earlier this month.

Overseas, Daiwa is looking to strengthen its reach in Asia -- such as in Indonesia, Malaysia and India -- mainly by forming alliances with local companies, Nakata said. In Europe, the company will take a “flexible” approach toward the possibility of a no-deal breakup between the U.K. and the European Union, he said.

“If Brexit causes the City to lose its capacity and standing as a money center, then we would have to shift to some degree toward places that have the prospect of becoming Europe’s next money center,” he said. Like Nomura, Daiwa has set up a unit in Frankfurt to prepare for Brexit.

©2018 Bloomberg L.P.