Nikkei 225 to Add Another 15% Before 2022, Daiwa Strategist Says

(Bloomberg) -- Japan’s Nikkei 225 Stock Average may surpass 30,000 yen by the end of next year as corporate earnings improve amid an easy monetary policy and overseas demand for equities, according to a strategist at Daiwa Securities Co.

Companies will post profits in fiscal 2021 as people and companies adapt to life with coronavirus, vaccines are developed and economic activity gradually normalizes, Kenji Abe, a strategist at Daiwa, wrote in a note. His call for the Nikkei 225 is at least 15% higher than the close in Tokyo on Tuesday.

The forecast is among the most bullish among the institutions beginning to price in a rally in Japanese equities. Goldman Sachs Japan Co. and Nomura Securities Co. earlier boosted their outlook for the blue-chip gauge, with Goldman setting a 12-month target of 27,200 and Nomura seeing the average at 28,000 by the end of 2021.

Valuations for Japanese companies will likely increase as central banks continue to sustain easy monetary policies, Abe wrote. Moreover, overseas investors may turn their attention to Japanese equities amid an economic recovery and structural reforms by the administration of Prime Minister Yoshihide Suga, he added.

“Overseas investors tend to buy into Japanese equities when developed countries recover economically and when the Japanese government adjusts its policies,” he wrote. “The Suga administration’s push for structural reform will encourage more overseas investors to invest in Japanese stocks.”

Overseas investors bought 1.1 trillion yen ($10.5 billion) worth of Japanese equities and futures contracts in the week ended Nov. 6, according to data from Japan Exchange Group Inc. That’s the most since October last year.

The themes for 2021 include Japan’s push for a greener society, the upcoming Olympic games, the reorganization of small-and-medium companies and digital transformation, Abe wrote. Value stocks could temporarily outperform amid expectations for economic normalization, but the gap between value and growth stocks won’t be large, as the push for digital transformation supports the latter, he wrote.

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