Goldman Cuts Japan Equity Forecasts as Foreign Investors Flee
(Bloomberg) -- Obstacles are piling up in Japan, everything from political scandal to a rising yen. Foreign investors are fleeing and now Goldman Sachs Group Inc. says its forecasts for stocks were too high.
The brokerage lowered its three-month target for the Topix gauge by 5.6 percent to 1,700, implying a slight decline from its current level. Goldman also reduced its six-month and 12-month targets 2.7 percent and 2.5 percent, respectively, to 1,800 and 1,950. The index closed at 1,817.56 points last year.
Foreign investors yanked 8.2 trillion yen out of Japanese stocks in the first three months of the year, mainly from futures, due to uncertainty surrounding domestic politics, a rising yen, global trade concerns and mixed macroeconomic data, according to Goldman.
“These headwinds will cap the upside for Japanese equities,” strategists led by Kathy Matsui wrote in a note dated March 29.
Matsui still expects a medium-term recovery for the Topix, which is down more than 5 percent this year. Goldman sees “limited” downside risk as the market has priced in the possibility of a 10 percent drop in earnings per share in fiscal 2018, whereas Goldman sees growth of 2.5 percent.
There is one caveat: the exchange rate would have to stay around the 105 yen-per-dollar mark.
The yen surged to a 16-month high against the dollar last month as the U.S. and China slapped new tariffs on each others’ products. At home, Prime Minister Shinzo Abe’s support rating slipped against the backdrop of a cronyism scandal involving the sale of government land to a school with alleged ties to the premier.
The Topix index rose as much as 0.4 percent and the Nikkei 225 Stock Average climbed 0.7 percent Monday, the first trading day of the second quarter. Goldman analysts also published a separate note dated March 29 citing the turn-of-the-month effect where the Nikkei 225 has risen on the first trading day of each month from July 2016 to February 2018.
©2018 Bloomberg L.P.