SMAM stock market outlook monthly · 2017. 3. 30. · 4 Baseline CPI is forecast to climb to 1%...
Transcript of SMAM stock market outlook monthly · 2017. 3. 30. · 4 Baseline CPI is forecast to climb to 1%...
Japanese Stock Market Outlook
SMAM monthly comments & views - April 2017 -
Japanese Economy
Japanese GDP growth is forecast to be faster than estimated potential growth rate around 0.7%. Recovering both private & public capital investments are going to be main drivers. Despite increasing uncertainties, SMAM assumes Trump policies in US to stimulate US economy and spread positive effects to global economies including Japan.
• Abe government is taking initiative of changing working practice in Japan. Limiting monthly overtime to be less than 60 hours
is one of the main targets. It has potentially both positive and negative implications for Japanese economy.
• Core CPI returned to a positive territory in January rising by 0.1% YOY. BOJ is holding its extra-easy monetary policies and
expected to do so during 2017, however, tapering could gradually come in sight. Purchasing pace of Japanese Government
Bonds is expected to decline due to a shortage of circulating issues.
Japanese Stock Markets
Japanese equities will be supported by improving fundamentals in the long-term. Double digit profit growth expected for FY2017 will make the valuation of Japanese stock market attractive. Focal points are such as fate of Trump policies, major elections in Europe and how working practice reform in Japan could affect the sentiment and activities of companies and people in Japan. .
• After examining 3QFY2016 results announced by companies, SMAM revised earnings forecasts upwards in March.
Compared to the forecast in December, recurring profit forecast was raised from previous +1.8% to +2.2% for FY2016, and
from +13.2% to +16.4% for FY2017. Presumption for foreign exchange rates were increased by 5 yen each for US$ and
EUR.
Executive summary
1
Notes: Macro and market views are as of Mar. 15th and 17th , 2017 respectively, and subject to updates thereafter without notice
Outlook for Japanese Economy
2
3
SMAM’s GDP growth forecast was unchanged from the last month.
Japanese GDP growth is forecast to be faster than estimated potential growth rate around 0.7%. Recovering
both private & public capital investments are going to be main drivers.
Despite increasing uncertainties, SMAM assumes Trump policies in US to stimulate US economy and spread
positive effects to global economies including Japan.
Notes: E=SMAM forecasts. SMAM views are as of Mar. 15th , 2017 and subject to updates thereafter without notice (Source) Cabinet Office, Bank of Japan, Ministry of Economy, Trade and Industry, Ministry of Internal Affairs and Communications, SMAM forecasts
(%, YoY except Net Exports)
SMAM economic outlook for FY16-18
( YoY %)
Real GDP growth 2.6% -0.4% 1.3% 1.2% 1.1% 0.9%
Private Consumption Expenditure 2.7% -2.7% 0.5% 0.6% 0.5% 0.6%
Private Housing Investment 8.3% -9.9% 2.7% 6.1% 0.5% 1.0%
Private Capital Investment 7.0% 2.4% 0.6% 2.5% 2.4% 2.1%
Public Consumption Expenditure 1.7% 0.4% 2.0% 0.8% 1.1% 0.8%
Public Capital Investment 8.6% -2.1% -2.0% -2.1% 3.7% 0.2%
Net Exports (contrib. to GDP growth) -0.5% 0.6% 0.2% 0.6% 0.3% 0.2%
Exports 4.4% 8.8% 0.8% 2.6% 3.7% 2.4%
Imports 7.1% 4.2% -0.2% -1.0% 1.6% 1.4%
Nominal GDP 2.6% 2.1% 2.8% 1.3% 1.7% 1.6%
GDP Deflator 0.0% 2.5% 1.4% 0.1% 0.6% 0.7%
Industrial Production 3.0% -0.4% -1.4% 1.4% 3.4% 2.5%
CPI (excl. fresh food) 0.8% 0.9% -0.1% -0.2% 0.7% 0.7%
FY16E FY18EFY13 FY14 FY15 FY17E
4
Baseline CPI is forecast to climb to 1% level in late 2017
Core CPI returned to a positive territory in January rising by 0.1% YOY.
BOJ is holding its extra-easy monetary policies and expected to do so during 2017, however, tapering could
gradually come in sight. Purchasing pace of Japanese Government Bonds is expected to decline due to a
shortage of circulating issues.
(month/year)
0.10
-1.4
-1.2
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3
2014 2015 2016 2017 2018
Food (excl. fresh food)
Energy
Baseline CPI (excl. food &energy)
Nationwide CPI and contribution of components(YoY %)
(Source) Ministry of Internal Affairs & Communications
Forecast by SMAM
Note: Effect of consumption tax hike in April 2014 is excluded.
Already severe labor shortage might be getting even more serious
Companies have increased part time workers responding to improving business demands.
Part time workers ratio snapped down recently. This might be indicating that reservoir of labor supply is
gradually drying out.
Significant wage increase might be imminent, which could substantially lift the inflation in Japan.
5
Note: Data is monthly from Jan. 2008 to Jan. 2017. (Year)
(Source) Ministry of Health, Labour & Welfare, compiled by SMAM.
Part time workers ratio (seasonally adjusted %)
30.6
26.0
26.5
27.0
27.5
28.0
28.5
29.0
29.5
30.0
30.5
31.0
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Note: Data is monthly from Jan. 2012 to Jan. 2017. (Year)
(Source) Ministry of Health, Labour & Welfare, compiled by SMAM.
Part time workers, regular wage (YOY %)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2012
2013
2014
2015
2016
2017
Hourly regular wage
6 months moving average
6
Rising wage pressure will be beneficial for the Japanese economy
Rising wage could be negative for the profitability of Japanese companies.
However, workers have not been rewarded enough despite the profit recovery to the historical record level.
Labor share ratio stays very low, which is one of the major reasons behind the lackluster private consumption.
The benefit of stimulating private consumption is expected to be larger than the negative impact on companies
when considering overall Japanese economy.
(Source) Ministry of Finance, corporate statistics
Note: Quarterly data from 1Q1985 to 4Q2016. Seasonally adjusted.
200
250
300
350
400
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
0
5
10
15
20
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
63.7
60
65
70
75
80
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Recurring profit (trillion yen)
Sales (trillion yen)
Labor share ratio (%)
(Year)
7
Working practice reform in Japan
Abe government is taking initiative of changing working practice in Japan. Limiting monthly overtime to be less
than 60 hours is one of the main targets.
It has potentially both positive and negative implications for Japanese economy.
Positive implications are; a) increase in efficiency and productivity of labor and b) stimulating private
consumption with increased leisure time. Negative implications are; 1) cut in business hours, 2) reduction of
household overtime income and 3) increase in labor cost of employers.
Industries
% of workers
experiencing
over 60h/month
overtiime in 2016
Agriculture&Forestry 15.3
Construction 15.3
Manufacturing 10.6
Electricity,Gas&Water 6.9
Information&Communication 11.6
Transportation&Postal service 24.0
Retail& Wholesale 12.2
Financials 8.7
Property&Leasing 9.7
Academic research & service 12.7
Hotel, Restaurants 15.1
Entertainment 15.0
Education 14.7
Medical&Welfare service 5.8
Public 10.9
All industries 11.9
Hard overtime working practice is
found in labor intensive industries.
Especially, Transportation & Postal
service is in a severe labor shortage
in the face of a huge increase in
deliveries due to shriving e-
commerce sales.
As much as 11.9% of the total
workers experienced more than 60
hours/ month of overtime work in
2016.
(Source) Ministry of Internal Affaires & Communications
Current National Diet session is hampered by a minor looking “Moritomo scandal”
Much of the current National Diet session has been wasted on debates over “Moritomo scandal”, an allegation
for PM Abe and his wife to have influenced a selling of a nationally owned land to Moritomo School, with which
they seem to have some private relationship.
At the moment, it is unlikely that this scandal would make a fatal blow to Abe government . The approval rating
for Abe cabinet retreated a little down to 51%.
8
0
10
20
30
40
50
60
70
80
90
Aug-9
8
Feb
-99
Aug-9
9
Feb
-00
Aug-0
0
Feb
-01
Aug-0
1
Feb
-02
Aug-0
2
Feb
-03
Aug-0
3
Fe
b-0
4
Aug-0
4
Feb
-05
Aug-0
5
Fe
b-0
6
Aug-0
6
Feb
-07
Aug-0
7
Feb
-08
Aug-0
8
Feb
-09
Aug-0
9
Feb
-10
Aug-1
0
Feb
-11
Aug-1
1
Feb
-12
Aug-1
2
Feb
-13
Aug-1
3
Feb
-14
Aug-1
4
Feb
-15
Aug-1
5
Feb
-16
Aug-1
6
Feb
-17
Obuchi
Mori
Koizumi
Abe 1
Fukuda
Aso
Hatoyama
Kan
Noda
Abe 2
Approval ratings of Japanese cabinets by Prime Ministers(%)
(Source) NHK (Japan Broadcasting Corporation)
Mar.51%
Current Abe
(Month/Year)
Political events should gather attention in 2017
In the US, Obama Care reform bill was withdrawn before the lower house voting in the face of opposition among
republicans. Clouds have darkened on Trump fiscal policies.
Europe is going to face important events such as notification of Brexit, elections in France, Germany and other
countries.
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Schedule of key events in 2017Month Region/Country Events Notes
US The Budget Message of The President Only the outline was released. Obama care reform was withdrawn.
Convention of the Liberal Democratic Party Maximum consecutive party leadership was extended to 3 terms.
Spring wage negotiations Base pay rise is going to be lower than in 2016.
Budget for FY2017 to be approved
Action plan for changing working practice Limit the monthly overtime. Encourage people to leave office early and spend.
Netherlands General election Feared surge of right wing was avoided.
UK Notification of exiting EU What kind of a deal UK can extract from EU?
BOJ Tankan business report
BOJ perspective report
US (28th) Temporaly budget for 2017 needs renewal Can President trump & US congress work together?
Apr & May France Presidential election
Japan Ordinary Session of National Diet ends
Japan Election for the Tokyo Metropolitan Assembly
France Lower house election
July Global G20 meeting
August Germany General election
(Source) Various publications, assembled by SMAM
June
Japan
Japan
March
April
Outlook for Japanese Stock Markets
10
Stock market outlook: Waiting for the real Trump policies to take shape
SMAM short-term view Chinese economy is getting firmer and US is growing solidly. Global economy is growing at a stronger pace
than forecast, which should support the stock market to gradually move up. Expected tough negotiation of fiscal policies between Trump White House and US congress will be a source of volatility for the stock market.
Longer-term outlook (6-months and beyond) Japanese equities will be supported by improving fundamentals in the long-term. Double digit profit growth
expected for FY2017 will make the valuation of Japanese stock market attractive. Focal points are such as fate of Trump policies, major elections in Europe and how working practice reform in Japan could affect the sentiment and activities of companies and people in Japan.
Note: SMAM’s projection is as of Mar. 17th,, 2017 and subject to updates without notice.
11
700
900
1,100
1,300
1,500
1,700
1,900
Jan-1
4
Feb
-14
Ma
r-1
4
Apr-
14
Ma
y-1
4
Jun-1
4
Jul-1
4
Aug-1
4
Se
p-1
4
Oct-
14
No
v-1
4
De
c-1
4
Jan-1
5
Fe
b-1
5
Ma
r-1
5
Apr-
15
Ma
y-1
5
Jun-1
5
Jul-1
5
Aug-1
5
Sep-1
5
Oct-
15
No
v-1
5
De
c-1
5
Jan-1
6
Feb
-16
Ma
r-1
6
Apr-
16
Ma
y-1
6
Jun-1
6
Jul-1
6
Aug-1
6
Sep-1
6
Oct-
16
No
v-1
6
De
c-1
6
Jan-1
7
Feb
-17
Ma
r-1
7
Apr-
17
Ma
y-1
7
Jun-1
7
Jul-1
7
Aug-1
7
Sep-1
7
Oct-
17
No
v-1
7
De
c-1
7
TOPIX
Forecast range upside
Forecast range downside
TOPIX index forecast range by SMAM
(Source) TOPIX: Tokyo stock exchange, Forecast by SMAM
(Points)
(Month/Year)Note: Topix data is from Jan. 6th 2014 to Mar. 27th 2017.
Base scenario & Upside / Downside risks for our forecasts
Our Base Scenario is assuming the following views:
• Practical Trump trade policies are made and serious trade disputes can be avoided.
• Expansionary policies in US keep global economies on a growth path.
• Japan’s private consumption to grow mildly supported by wage growth.
• Japanese yen does not get extremely stronger beyond 100 yen against US$.
• Further fiscal stimulus will be made and extra easy monetary policy should sustain economic growth in
Japan.
Upside Risks include:
• Stronger-than-expected global growth.
• Stronger-than-expected measures by the Abe government.
Downside Risks include:
• Confrontational foreign policies taken by Trump presidency shake global trades.
• Trump policies for stimulating US economy fail to pass US congress.
• Populism gains in Europe further destabilizing EU.
• Heightening geo-political tensions in Middle East & East Asia.
• Rekindled concern over emerging economies including China.
• “Moritomo scandal” makes a fatal blow to PM Abe.
12
Note: SMAM’s projection is as of Mar. 17th,, 2017 and subject to updates without notice.
13
Emerging stock markets continue to rise supported by recovering Chinese economy
13
US stock market retreated a little in March on uncertainties surrounding US fiscal policies.
Emerging market showed a solid performance, Japan and Europe also gained in March.
70
80
90
100
110
120
130
De
c-1
5
Ja
n-1
6
Fe
b-1
6
Ma
r-1
6
Ap
r-1
6
Ma
y-1
6
Ju
n-1
6
Ju
l-1
6
Au
g-1
6
Se
p-1
6
Oct-
16
No
v-1
6
De
c-1
6
Ja
n-1
7
Fe
b-1
7
Ma
r-1
7
MSCIEM/US$
S&P500
TOPIX/US$
MSCIEurope/US$
TOPIX/Yen
US$ based performance of stock markets (Dec 2015 =100)
(Source) Datastream, MSCI and Tokyo Stock Exchange, compiled by SMAM.
Notes: Data is up tp Mar. 24th 2017.
(Month/Year)
SMAM raised earnings forecast for FY 2016 and FY2017
After examining 3QFY2016 results announced by companies, SMAM revised forecasts upwards in March.
Compared to the forecast in December, recurring profit forecast was raised from previous +1.8% to +2.2% for
FY2016, and from +13.2% to +16.4% for FY2017. Presumption for foreign exchange rates were increased by 5
yen each for US$ and EUR.
14
SMAM Corporate Earnings forecasts (221 Companies research coverage excl. financials)
Fiscal year FY 2014 FY 2015
Date of forecast Actual Actual as of 15th Mar 2017 as of 15th Mar 2017
Revenue (YoY %) 3.9% 0.1% -3.1% 5.3%
Operating Profits (YoY %) 3.1% 9.1% -2.4% 15.7%
Recurring Profits (YoY %) 4.5% 2.5% 2.2% 16.4%
Net Profits (YoY %) 5.4% -3.2% 12.6% 17.2%
Recurring profits (YoY %)
Manufacturing 137 companies 4.1% 0.2% 2.3% 21.7%
Non-manufacturing 84 companies 5.2% 6.5% 6.7% 9.0%
Note:Key assumptions for the forecasts, Yen/US$ 115, Yen/EUR 120, Crude oil $55/barrel
(Source) SMAM
FY 2016E FY 2017E
15
Latest 12M forward EPS forecast is over 109, and it is less than 1 point from the highest level reached
in December 2015.
13.6% EPS growth is forecast in the coming 12 months.
EPS forecasts by analysts continue to expand
96
109
13.6%
0%
10%
20%
30%
40%
50%
60%
70%
0.00
20.00
40.00
60.00
80.00
100.00
120.00
Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
IBES EPS consensus forecast for TOPIX
Historical EPS 12M forward EPS Forecast EPS growth
Note: Weekly data from Jan. 5th 2011 to Mar. 13th 2017.
(Source) Datastream, IBES
(Points)
(Month/Year)
PER (Price Earnings Ratio) at14x looks not too expensive
Based on 12M forward EPS of 109, TOPIX level corresponding to 14x is 1526, 15x is 1635 and 16x is 1744.
Japanese stock market valuation in TOPIX is at the middle of the range between 12x and 16x after PM Abe’s
second term began.
16
300
500
700
900
1,100
1,300
1,500
1,700
1,900
Oct-
07
De
c-0
7F
eb
-08
Ap
r-0
8Ju
n-0
8A
ug-0
8O
ct-
08
De
c-0
8F
eb
-09
Ap
r-0
9Jun-0
9A
ug-0
9O
ct-
09
De
c-0
9F
eb
-10
Ap
r-1
0Ju
n-1
0A
ug-1
0O
ct-
10
De
c-1
0F
eb
-11
Ap
r-1
1Ju
n-1
1A
ug-1
1O
ct-
11
De
c-1
1F
eb
-12
Ap
r-1
2Ju
n-1
2A
ug-1
2O
ct-
12
De
c-1
2F
eb
-13
Ap
r-1
3Ju
n-1
3A
ug-1
3O
ct-
13
De
c-1
3F
eb
-14
Ap
r-1
4Ju
n-1
4A
ug-1
4O
ct-
14
De
c-1
4F
eb
-15
Ap
r-1
5Ju
n-1
5A
ug-1
5O
ct-
15
De
c-1
5F
eb
-16
Ap
r-1
6Ju
n-1
6A
ug-1
6O
ct-
16
De
c-1
6F
eb
-17
Note: Data is weekly from Oct. 26th 2007 to Mar. 10th 2017. TOPIX was 1574.01 at the end of the period. (Source) Tokyo Stock Exchange, Datastream and IBES, compiled by SMAM
TOPIX
(Month/Year)
TOPIX and PER based on 12-month forward EPS
16x
12x
13x
14x
15x
PM Abe's 2nd term started
Corporate governance & shareholder returns are making a solid gain
Total shareholder return ratio is forecast to rise above 50% in FY 2016.
17
0
10
20
30
40
50
60
70
80
90
100
0
5
10
15
20
25
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
(%)(JPY tn) Dividend payments & Share buyback by listed firms
Share Buyback Total(LHS)
Aggregate Dividends(LHS)
Total Shareholders Return(RHS)
Notes : For ordinary shares of listed firms excluding lossmakers or subsidiaries, as of Mar. 15th 2017.Source : Toyo Keizai, Quick, I-N Information Systems, Daiwa Securities forecasts
(Fiscal year)
Forecast
Foreign investors turned to sellers in February and March.
After the Trump rally, investors are waiting for how the real Trump policies can be negotiated in US congress.
18
500
700
900
1100
1300
1500
1700
-3,000
-2,000
-1,000
0
1,000
2,000
3,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Jan Feb Mar
Net purchasing of Japanese equities by investor type
Foreign Trust bank Individual Inv. Trust Fund Business corp TOPIX
2015
TOPIX (points)
Bar charts (Yen billion)
(Source) Japan Exchange Group
Note: Data is for Tokyo stock exchange and Nagoya stock exchange up to Mar.17th 2017.
2016
(Month/Year)
2017
19
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demonstrate capabilities and expertise of Sumitomo Mitsui Asset Management Company, Ltd. (hereinafter “SMAM”), or to provide information on
investment strategies and opportunities. Therefore this material is not intended to offer or solicit investments, provide investment advice or service, or to be considered as disclosure documents under the Financial Instruments and Exchange Law of Japan.
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