Nikkei May Eye 36,000 or Return to Market Malaise After Suga
(Bloomberg) -- The prospect of a new Japanese leader encouraged equity investors to lift local stocks to three-decade highs.
Investors will now go into a rare period of political excitement in Tokyo, as potential replacements to the unpopular Yoshihide Suga jostle to become head of the ruling Liberal Democratic Party -- and the next prime minister -- with one candidate already promising to spend trillions of yen.
The Nikkei 225 Stock Average could rise as high as 36,000 yen this year, or 24% from the current level, Eiji Kinouchi, an analyst at Daiwa Securities Co., wrote in a report Friday -- provided the new premier is able to secure more hospital beds for Covid patients to sustain Japan’s economic recovery from the pandemic.
A change at the top will allow investors to focus on Japan’s strengths, such as its “world leading” companies and low Covid deaths, said Richard Kaye, a portfolio manager at Comgest Asset Management Japan Ltd. Suga struggled to present his policies in a way to win public support.
“Suga had created an atmosphere of uncertainty, and investors hated that,” Kaye said. “Many of his problems were beyond his control, but there was a perception that Japan was ‘in a mess’.”
It wasn’t always the case for Suga. As prime minister he oversaw what seven years of his predecessor Shinzo Abe’s “Abenomics” could not, as the Nikkei 225 returned to the 30,000 yen level for the first time since 1990. His domestic programs for digitalization and childcare created many stock winners, while he wasn’t afraid to push for sweeping reform of mobile-phone firms.
Focus will now shift to the forthcoming vote to elect a new LDP chief. Traders expect a possible pop based on reports Friday that Taro Kono, the social-media-savvy overseer of Japan’s vaccine response, plans to run.
“Foreign investors absolutely love Kono -- he speaks English, he went to an American university, and that plays really well,” Nicholas Smith, a strategist at CLSA Securities Japan Co., said on Bloomberg Television. “I think his time has come.”
Former Foreign Minister Fumio Kishida has already said he’s running. While not as popular as Kono, markets can take heart from his plans to spend “tens of trillions” of yen if he wins power -- indeed, any potential replacement to Suga is likely to accelerate spending.
Others say investors still need to be cautious. As the tide turned on Suga’s popularity in January, just as Tokyo began a state of emergency that essentially has never ended, a prescient report from Fitch Ratings Inc. warned that a failure by Suga to contain the virus could lead to his being ousted.
That’s now come to pass. But the report further outlined a more long-term risk -- of a return to the “revolving door” pattern of premierships that saw Japan go through six prime ministers in as many years after the popular Junichiro Koizumi stepped down in 2006.
Any successor to Suga may not find the coronavirus any easier to tame, and public opinion could quickly shift again.
“The problem we’re facing now, what the world is facing, is the coronavirus. This is a problem that’s difficult for anyone to solve,” said Hiroshi Matsumoto, the head of Japan investment at Pictet Asset Management. “Suga was very unpopular -- but it’s not as if things will become better because we find a different person for the job.”
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