Tokyo stocks are likely to climb in 2021 with progress in global COVID-19 vaccinations helping to improve the business climate and Japan’s accommodative monetary policies remaining in place.

Analysts forecast the benchmark 225-issue Nikkei stock average of the Tokyo Stock Exchange, which finished 2020 trading Wednesday at 27,444.17 — the highest year-end close since 1989 — will move between 21,000 and 30,500 in 2021.

“In the first half of 2021, the stock market will still be weighed down by the continuing pandemic. But as more people get vaccinated, there will be a bigger pickup in the second half,” said Makoto Sengoku, senior equity market analyst at the Tokai Tokyo Research Institute.

Sengoku said the 30,000 mark will come within reach by the end of 2021, as more companies are expected to buy back their shares to increase shareholder returns.

Foreign investors, who have been net buyers of Japanese stocks in recent months, are likely to remain buyers in line with a global economic recovery, giving added impetus to the market, analysts say.

The 30,000 line is a level unseen since August 1990, when the benchmark was falling from a record high finish of 38,915.87 on Dec. 29, 1989, at the height of the asset-inflated bubble economy.

The pandemic rattled the Tokyo market in 2020, sending the Nikkei to as low as 16,552.83 in March. It began to recover in the summer on the back of massive monetary easing and the government’s stimulus packages.

Combined with optimism about coronavirus vaccine development and the clearer U.S. political outlook, the benchmark Nikkei rose 15% just in November.

Central banks in Japan, the United States and Europe have pledged to keep their interest rates at near zero and to further inject money into the financial market. The Bank of Japan has raised its annual pace of exchange-traded fund purchases to ¥12 trillion from ¥6 trillion to tackle the coronavirus fallout.

The Nikkei’s expected rise in 2021 will be led by gains in issues with high exposure to the Chinese market, said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co.

Sentiment among major Japanese manufacturers has already improved in December as exports have shown signs of recovery on firm auto shipments to China. The International Monetary Fund projects 8.2% growth in China in gross domestic product and a 2.4% expansion in Japan.

“Among automakers and car components makers, those involved in electric vehicles especially have a chance for a further advance,” Fujito said.

“With expectations that 5G wireless communications technologies will be widely available in China, semiconductors and electric component-makers will likely remain in favor as well.”

Companies related to digital transformation and green energy also have room for strong gains, with Prime Minister Yoshihide Suga’s government focusing on such areas, brokers said.

On the foreign exchange market, the U.S. dollar is expected to trade between ¥95 and ¥115 during 2021, analysts and currency dealers said.

“Even if the dollar falls below the ¥100 line, it is unlikely to remain weak for long, as the dollar and yen moves will reflect the fact that the gap between U.S. and Japanese interest rates is small,” said Yuzo Sakai, chief manager of foreign exchange business promotion at Ueda Totan Forex Ltd.

The dollar last dropped below the ¥100 line in June 2016.

Takuya Kanda, general manager of the research department at Gaitame.com Research Institute, said investors would focus more on the “difference between U.S. and Japanese business confidence” than interest rates, saying the dollar is expected to rise toward the second half of the year as the U.S. economy recovers.

One of the main risk factors for the stock market will be U.S. President-elect Joe Biden’s policies, analysts said.

During the presidential election, investors welcomed some of Biden’s proposed economic policies such as increasing stimulus and stepping up investment in infrastructure as well as clean energy.

There have also been expectations that a possible continuation of the divided Congress after Georgia’s Senate runoff election in January will block the Democrats’ proposed tighter regulations on U.S. tech giants and prevent reversal of President Donald Trump’s corporate tax cuts.

But the market will sooner or later realize that a divided Congress will also pose challenges to the effectiveness of the Biden administration.

“The Nikkei has risen so far on opportunistic reasons, looking at only the good sides. But the market will soon have to face reality,” said Shingo Ide, chief equity strategist at NLI Research Institute, noting that if Congress rejects tax hikes, large government investments “will be impossible.”

As for Biden’s foreign policies, many brokers expected him to take a milder stance toward China than his predecessor Trump and that U.S.-China rivalry in the technology field will thus have only limited impact on the Japanese market.

But NLI Research Institute’s Ide warned of possible “turbulence” in the summer, with the 100th anniversary of the Chinese Communist Party’s founding falling in July.

He noted that the party has set itself the goal of building a “moderately prosperous society in all respects” by 2021, and will be keen to ensure it is able to celebrate its centenary by trumpeting its achievement of that goal.

Among other factors, many analysts expect that a cancellation of the Tokyo Olympics and Paralympics, now set for July after being postponed for a year, would hit the stock market, but that the blow would not be that large as the Summer Games are already expected to be scaled down.

Regardless of the pandemic’s course, investors will flock to winners to fuel the market’s advance, widening the disparity between good and bad performers in 2021, Tokai Tokyo Research Institute’s Sengoku said.

“It will be a year of selecting individual issues, not just judging them by sectors but by evaluating each companies’ business content and its performance,” he said.

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