SMAM stock market outlook monthly · Europe 84.1% 62.6% 21.4% Notes: Data is for 2013. TOPIX for...
Transcript of SMAM stock market outlook monthly · Europe 84.1% 62.6% 21.4% Notes: Data is for 2013. TOPIX for...
Japanese Stock Market Outlook
SMAM monthly comments & views - December 2015 -
Japanese Economy
Private consumption recovered in 3Q and also negative effects from slowdown in China seems gradually easing for Japanese economy. Fiscal and monetary measures can be expected in Japan early next year, which should make Japanese economy more light-footed on its recovery path.
• GDP forecast for FY2015 was upgraded from +0.6% to +0.8% on recent observation of rebounds in private
consumption and possibly stabilizing exports and industrial production. Forecast for FY2016 was also upgraded from
+0.9% to +1.0%.
• 3Q (Jul-Sep) GDP was -0.8% QoQ annualized, for which cut down in inventory and weak private capital investment
were main cause. Private consumption has recovered in 3Q and it is expected to lead the GDP growth going forward.
GDP is forecast to start growing again from 4Q.
Japanese Stock Markets
Risk-off mode has moderated, which made global markets to rebound. The Japanese stock market will be in a range bound move as US interest rate hike is forecast in Dec. The market will find a more spring in its steps in early next year when fiscal and monetary measures are brought in as expected.
• Markets rebounded from the trough on additional policy measures and confirmation of continuing economic
growth in the US. PER for Japan stays low and attractive compared to US and Europe.
• There is a huge potential if shareholder returns from Japanese companies improves to catch up peers in the
US and Europe. If such improvements can be achieved, it would make a strong tailwind for Japanese stocks for
the long term.
Executive summary
1
Notes: Macro and market views are as of November 16th and 18st 2015 respectively, and subject to updates thereafter without notice
Outlook for Japanese Economy
2
3
GDP forecast for FY2015 was upgraded from +0.6% to +0.8% on recent observation of rebounds in private
consumption and possibly stabilizing exports and industrial production. Forecast for FY2016 was also
upgraded from +0.9% to +1.0%.
For FY2016, private sector is expected to show a reasonable growth, consumption at +1.9%, housing
investment at +4.1% and capital investment at +1.7%. Contraction in the public capital investment is the main
drag, for which “special spending program of reconstruction from the earthquake and tsunami in 2011” comes
to an end.
Notes: E=SMAM forecasts. SMAM views are as of Nov. 16th, 2015 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 FY15-16
Real GDP growth 1.0% 2.1% -0.9% 0.8% 1.0%
Private Consumption Expenditure 1.8% 2.5% -3.1% 0.6% 1.9%
Private Housing Investment 5.7% 9.3% -11.6% 3.9% 4.1%
Private Capital Investment 1.2% 4.0% 0.5% -0.2% 1.7%
Public Consumption Expenditure 1.5% 1.6% 0.4% 1.3% 0.2%
Public Capital Investment 1.0% 10.3% 2.0% 1.1% -0.2%
Net Exports (contrib. to GDP growth) -0.8% -0.5% 0.6% 0.0% -0.2%
Exports -1.4% 4.4% 7.9% 1.2% 3.1%
Imports 3.6% 6.7% 3.6% 1.2% 4.6%
Nominal GDP 0.1% 1.8% 1.6% 1.9% 2.0%
GDP Deflator -0.9% -0.3% 2.5% 1.2% 0.9%
FY15E FY16EFY12 FY13 FY14
4
3Q (Jul-Sep) GDP was -0.8% QoQ annualized, for which cut down in inventory and weak private capital
investment were main cause.
Private consumption has recovered in 3Q and it is expected to lead the GDP growth going forward. GDP is
forecast to start growing again from 4Q.
SMAM economic outlook for FY15-16
-20
-15
-10
-5
0
5
10
FY13Q1 Q2 Q3 Q4 FY14Q1 Q2 Q3 Q4 FY15Q1 Q2 Q3 Q4 FY16Q1 Q2 Q3 Q4 FY17Q1
Private Consumption
Private Housing Investment
Private Capital Investment
Public Investment
Others
Net Export
Real GDP
Forecast by SMAM
(QoQ % annualized) Real GDP and contribution by components
Notes: E=SMAM forecasts. SMAM views are as of Nov.16th, 2015 and subject to updates thereafter without notice Source: Cabinet Office, Ministry of Economy, Trade and Industry, Ministry of Internal Affairs and Communications, SMAM forecasts .
Negative effects from global economic deceleration on Japanese exports might be easing
After a sharp fall in exports in 2Q, total exports from Japan recovered to positive in 3Q, though exports to China
was still deteriorating.
5
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
10 11 12 13 14 15
China
Asia excl. China
U.S.
EU
Others
Total Exports
Total Exports and contribution by destinations (QoQ%)(QoQ %)
(Source) Ministry of Finance and Bank of Japan, compiled by SMAM
6
Manufacturing Global PMI ticked up in October after 7 consecutive month of decline. Keep watchful eyes for
whether this recovery continues.
42.0
44.0
46.0
48.0
50.0
52.0
54.0
56.0
58.0
60.0
Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15
Markit Manufacturing PMI
Global USA JAPAN EU China
(Points)
(Source) DataStream
Data period from Dec. 2012 to Oct. 2015
The latest PMI indicates recovery in the global manufacturing sector
Japan is in a solid inflationary environment when fresh food and energy were excluded
Underlying CPI trend is solidly rising when fresh food and energy were excluded, which is watched by BOJ.
Lower energy prices are helping companies, however, the benefit has not yet reached consumers who are
feeling higher cost of living.
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-1.60%
-1.40%
-1.20%
-1.00%
-0.80%
-0.60%
-0.40%
-0.20%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%
1.80%
1 2 3 4 5 6 7 8 91011121 2 3 4 5 6 7 8 91011121 2 3 4 5 6 7 8 91011121 2 3 4 5 6 7 8 91011121 2 3 4 5 6 7 8 91011121 2 3 4 5 6 7 8 91011121 2 3
11 12 13 14 15 16 17
CPI and key components (YoY %)
Forecast by SMAM
Note: Excluding direct impact from consumption tax hike in April 2014.
(Source) Ministry of Internal Affairs & Communications, forecast by SMAM.
Core CPI( excl. fresh food)
EnergyFood
CPI watched by BOJ( excl. fresh food & energy)
8
Increase in regular wage has been positive for consumers
Regular wage payment has been increasing YOY since January 2015, which has been positive for consumers.
Whether this increasing trend in wage can be sustained in and after FY2016 is quite important for the Japanese
economy, and underlying strength in corporate earnings requires close attention.
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9
12 13 14 15
Overtime etc
Bonus
Regular wage
Tot cash wage paymentYOY%
Cash wage payment and contribution by components(YOY %)
(Source) Ministry of Health, Labor and Welfare
Outlook for Japanese Stock Markets
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Stock market outlook: The stock market is waiting for further stimulus measures
SMAM short-term view Risk-off mode has moderated, which made global markets to rebound. The Japanese stock market will be in a
range bound move as US interest rate hike is forecast in Dec. The market will find a more spring in its steps in early next year when fiscal and monetary measures are brought in as expected.
Longer-term outlook (6-months and beyond) Chinese economy is expected to gradually stabilize as policy measures buildup further and start to take effect. The Japanese stock market will get firmer as fiscal measures and additional monetary stimulus are expected in
early next year and further economic policies and initiatives can be announced running up to the upper house election expected in July 2016.
Note: SMAM’s Projection is as of November 18st 2015 and subject to updates without notice
10
700
900
1,100
1,300
1,500
1,700
1,900
2,100
Ju
l-1
2
Au
g-1
2
Se
p-1
2O
ct-
12
No
v-1
2D
ec-1
2
Ja
n-1
3
Fe
b-1
3M
ar-
13
Ap
r-1
3M
ay-1
3
Ju
n-1
3Ju
l-1
3
Au
g-1
3
Se
p-1
3O
ct-
13
No
v-1
3D
ec-1
3
Ja
n-1
4
Fe
b-1
4M
ar-
14
Ap
r-1
4M
ay-1
4
Ju
n-1
4Ju
l-1
4
Au
g-1
4
Se
p-1
4O
ct-
14
No
v-1
4D
ec-1
4
Ja
n-1
5
Fe
b-1
5M
ar-
15
Ap
r-1
5M
ay-1
5
Ju
n-1
5Ju
l-1
5
Au
g-1
5
Se
p-1
5O
ct-
15
No
v-1
5D
ec-1
5
Ja
n-1
6
Fe
b-1
6M
ar-
16
Ap
r-1
6M
ay-1
6
Ju
n-1
6Ju
l-1
6
Au
g-1
6
Se
p-1
6O
ct-
16
No
v-1
6D
ec-1
6
TOPIX
Forecast range upside
Forecast range downside
TOPIX index forecast range by SMAM
(Source) TOPIX: Tokyo stock exchange, Forecast by SMAM
(Points)
Base scenario & Upside / Downside risks for our forecasts
Our Base Scenario is assuming the following views:
• Global economic recovery to be sustained led by strong US economy
• Japan’s private consumption to grow though mildly supported by higher real wages growth
• Growing expectation for positive corporate earnings revisions due to weaker JPY
• Reflationary policy to be continued toward the next consumption tax hike
Upside Risks include:
• Stronger-than-expected global growth
• Stronger-than-expected measures by Abe government
Downside Risks include:
• Unexpectedly large impact from the process of US monetary policy normalization
• Concern over emerging economies including China
• Increasing geopolitical concerns
11
12
Corporate earnings are expected to keep growing despite increasing pressure on top-line sales. Lower
costs such as energy and materials have been supportive so far.
Some caution is required as analysts are revising earnings forecasts more often downward than
upward recently.
Earnings growth is expected to continue for Japan with a caution for down-revisions
(10)
10
30
50
70
90
110
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2003/12 2005/06 2006/12 2008/06 2009/12 2011/06 2012/12 2014/06 2015/12 2017/06E
PS
(Ye
n)
TO
PIX
TOPIX and EPS
Source : Bloomberg, DataStream
IBES Consensus EPS
TOPIX
12M FWD EPS
18M FWD EPS
Historical EPSConsensus Estimate
As of Oct. 2015
-40%
-30%
-20%
-10%
0%
10%
20%
30%
10/09 11/09 12/09 13/09 14/09 15/09
TOPIX Earnings Forecast Revision Index
Notes : Revision index = %of Analyst upgrades out of total Topix firms - %of downgrades. Calender year, weeklySource : IBES,SMAMUp to Nov. 4th
13
Huge potential for improving total shareholder returns
13
Total
shareholder
return ratio
a) + b)
Dividend
payout ratio
a)
Share
buyback/
Shareholder
earnings
b)
Japan 36.2% 25.9% 10.3%
USA 85.7% 34.7% 51.0%
Europe 84.1% 62.6% 21.4%
Notes: Data is for 2013. TOPIX for Japan, S&P500 for USA and STOXX Europe 600 for Europe.
(Source) FactSet, compiled by SMAM.
Comparison of shareholder returns among major stock markets
There is a huge potential if shareholder returns from Japanese companies improve to catch up peers in the US
and Europe.
If such improvements can be achieved, it would make a strong tailwind for Japanese stocks for the long term.
PER has fallen globally and relative attractiveness for Japan still holds
PER has fallen globally on decelerating economic growth and concern for further deterioration.
Markets rebounded from the trough on additional policy measures and confirmation of continuing economic
growth in the US. PER for Japan stays low and attractive compared to US and Europe.
Better fundamentals in Japan, such as faster earnings growth and improving corporate governance should be
favorable for Japanese equities.
14
8.0
10.0
12.0
14.0
16.0
18.0
20.0
PER of MSCI country indices
Date period from Jan.2012 to Oct.2015
17.0 US
14.3 Japan
15.0 Europe
Note: PER is based on 12 month forward EPS forecast as of the end of each month.(Source) MSCI , IBES , FactSet
USA 8.0%
Europe 6.6%
Japan 11.7%As of 15-Oct-2015
12Month EPS
Growth forecast
PER for Japanese stock market seems attractive in historical comparison
Since Abenomics started, PER for Japanese stock market, in TOPIX index, has been in a range between 13x
and 16x.
Current PER around 14x is in a lower side of this range and downside for the stock market seems limited.
15
300
500
700
900
1,100
1,300
1,500
1,700
1,900
Oct
-05
Dec
-05
Feb-
06A
pr-0
6Ju
n-06
Aug
-06
Oct
-06
Dec
-06
Feb-
07A
pr-0
7Ju
n-07
Aug
-07
Oct
-07
Dec
-07
Feb-
08A
pr-0
8Ju
n-08
Aug
-08
Oct
-08
Dec
-08
Feb-
09A
pr-0
9Ju
n-09
Aug
-09
Oct
-09
Dec
-09
Feb-
10A
pr-1
0Ju
n-10
Aug
-10
Oct
-10
Dec
-10
Feb-
11A
pr-1
1Ju
n-11
Aug
-11
Oct
-11
Dec
-11
Feb-
12A
pr-1
2Ju
n-12
Aug
-12
Oct
-12
Dec
-12
Feb-
13A
pr-1
3Ju
n-13
Aug
-13
Oct
-13
Dec
-13
Feb-
14A
pr-1
4Ju
n-14
Aug
-14
Oct
-14
Dec
-14
Feb-
15A
pr-1
5Ju
n-15
Aug
-15
TOPIX TOPIX and PER based on 12month forward EPS
16x
15x
14x
13x
12x
Date is up to October 30th 2015
PM Abe's 2nd term started
Notes: TOPIX: calender year and week-end, P/E ratio is based on 12-month forward EPS of IBESSource: TOPIX: Tokyo Stock Exchange, 12-month forward EPS of IBES: SMAM
Supply-Demand balance: Foreign investors turned to purchasing Japanese equities
Since late October, foreign investors stopped selling and turned to purchasing Japanese equities.
Listing of three Japan Post companies on November 4th was a success. A lot of Japanese private investors
participated shifting money mainly from deposits and made a handsome profit on rising share prices.
16
0
5,000
10,000
15,000
20,000
0
100
200
300
400
500
600
700
2010 2011 2012 2013 2014 2015
Foreign Investor Net-Buys & Nikkei 225
Foreigners' net buy accumlated (LHS)
Nikkei 225 end week(RHS)
Notes: Calendar year, weekly. Foreign investors' net purchase of TSE listed stocksSource: Tokyo Stock Exchage, SMAM
(JPY)(JPY '00bn)
Up to Nov. 6th
17
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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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losses and the results of investments, including such losses, belong to the client. = The recipient of this report must make its own independent decisions regarding investments. = The opinions, outlooks and estimates in this report do not guarantee future trends or results. They constitute SMAM’s judgment as of the date of
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