Japan Equity Outlook Pits BlackRock Against Pictet: Taking Stock

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Even as investors await the outcome of the U.S. presidential election, Japanese shares have broken out of their recent trading range, with the Nikkei 225 Stock Average rallying to a nine-month high on Wednesday.

But Japan’s economic prospects seem to be dividing opinion among global money managers on the outlook for the nation’s stocks.

BlackRock Inc. downgraded Japanese shares to underweight this week, saying that a stronger yen may put pressure on the country’s key export sector. In contrast, Pictet Asset Management upgraded Japan’s stocks to overweight on bets the economy is well placed to benefit as Asia recovers from the pandemic.

Japan Equity Outlook Pits BlackRock Against Pictet: Taking Stock

A pickup in inflows from foreign investors and bets on a rebound in cyclical stocks has augured well for Japan’s market lately. The Nikkei 225 erased its losses for 2020 in October, months after markets such as South Korea and New Zealand achieved similar feats. The gauge rose 1.7% Wednesday, outperforming the regional benchmark.

Japanese stocks could attract more inflows in coming months on expectations that corporate reform will continue under Prime Minister Yoshihide Suga, Luca Paolini, chief strategist at Pictet Asset, wrote in a note Tuesday. The nation’s real exports have expanded for four months in a row, while household spending is expected to pick up, thanks to fiscal and monetary stimulus, he wrote.

That came a day after BlackRock’s Global Chief Investment Strategist Mike Pyle downgraded Japanese shares to underweight, saying that a weaker dollar could spur gains in the yen, putting pressure on Asian nation’s export sector. Japan’s currency has rallied close to 4% against the greenback this year.

Pyle said he expects “Japanese stocks to benefit less than other Asian markets and EM in general from a recovery in global trade,” though added that BlackRock is “not outright negative” on the market.

Profit Recovery

Japanese firms have fared well so far this earnings season. Nikkei 225 companies that have reported quarterly results have delivered a positive earnings surprise of 24% on average, according to data compiled by Bloomberg. That could leave room for upgrades as the recovery in forward earnings estimates for the Japanese gauge has lagged the broader Asian market.

Japan Equity Outlook Pits BlackRock Against Pictet: Taking Stock

“In previous global recessions, the profit recovery for Japanese corporates has always been a ‘V’ and we wouldn’t doubt this time will be different,” Jefferies Financial Group Inc. strategists including Sean Darby wrote in a Wednesday note.

©2020 Bloomberg L.P.

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