Tokyo shares are expected 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 predict the benchmark stock average of the Tokyo Stock Exchange’s 225 Nikkei numbers, which ended Wednesday, 2020 at 27,444.17 – the highest year-end close since 1989 – will drop to between 21,000 and 30,500 in 2021. .
“In the first half of 2021, the stock market will still be weighed down by the continuation of the pandemic. But as more and more people get vaccinated, there will be a bigger recovery in the second half of the year, ”said Makoto Sengoku, senior equity market analyst at the Tokai Tokyo Research Institute.
Sengoku said the 30,000 mark will be within reach by the end of 2021, as more companies are expected to buy back their shares to boost shareholder returns.
Foreign investors, who have been net buyers of Japanese equities in recent months, will likely remain buyers in line with the global economic recovery, giving the market additional momentum, analysts say.
The 30,000 line is a level not seen since August 1990, when the benchmark fell from a record 38,915.87 on December 29, 1989, at the height of the asset-inflated economic bubble.
The pandemic rocked the Tokyo market in 2020, pushing the Nikkei to 16,552.83 in March. It started to recover this summer thanks to massive monetary easing and government stimulus packages.
Combined with optimism about the development of a coronavirus vaccine and a clearer U.S. political outlook, the Nikkei benchmark rose 15% just in November.
Central banks in Japan, the United States and Europe have pledged to keep their interest rates close to zero and to pump more money into the financial market. The Bank of Japan has increased its annual pace of purchases of exchange-traded funds to 12 trillion yen from 6 trillion yen to combat the fallout from the coronavirus.
The expected rise of the Nikkei in 2021 will be fueled 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 showed signs of a recovery on firm auto shipments to China. The International Monetary Fund forecasts an 8.2% growth in gross domestic product in China and an expansion of 2.4% in Japan.
“Among automakers and auto component manufacturers, those involved in electric vehicles mostly have a chance to make further progress,” Fujito said.
“With the hope that 5G wireless communication technologies will be widely available in China, semiconductor and electrical component manufacturers will likely remain in favor as well.”
Companies related to digital transformation and green energy can also make big gains, with Prime Minister Yoshihide Suga’s government focusing on these areas, brokers said.
In the forex market, the U.S. dollar is expected to trade between 95 and 115 yen in 2021, analysts and currency brokers have said.
“Even if the dollar falls below the ¥ 100 line, it is unlikely to stay weak for long, as movements in the dollar and yen will reflect the fact that the spread between the US and Japanese interest rates is low, ”said Yuzo Sakai, general manager. of Foreign Exchange Business Promotion at Ueda Totan Forex Ltd.
The dollar last fell below the ¥ 100 line in June 2016.
Takuya Kanda, general manager of the research department at the Gaitame.com Research Institute, said investors would focus more on the “difference between US and Japanese business confidence” than on interest rates, saying that the dollar is expected to rise around the second half of the year. as the US economy recovers.
One of the main risk factors for the stock market will be the policies of US President-elect Joe Biden, analysts say.
During the presidential election, investors praised some of the economic policies proposed by Biden, such as increasing the stimulus and stepping up investment in infrastructure as well as clean energy.
It is also expected that a possible continuation of the divided Congress after the second round of the Senate in Georgia in January will block stricter regulations proposed by Democrats on US tech giants and prevent the reversal of tax cuts. on the companies of President Donald Trump.
But sooner or later the market will realize that a divided Congress will also pose challenges to the effectiveness of the Biden administration.
“The Nikkei has risen so far for opportunistic reasons, looking only at the good sides. But the market will soon have to face reality, ”said Shingo Ide, chief equity strategist at the NLI Research Institute, noting that if Congress rejects the tax hikes, significant government investments“ will be impossible ”.
As for Biden’s foreign policy, many brokers expected him to take a softer stance on China than his predecessor Trump, and therefore the US-China tech rivalry will only have an impact. limited in the Japanese market.
But the NLI Research Institute’s India has warned of possible “turbulence” this summer, with the 100th anniversary of the founding of the Chinese Communist Party 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 that it will be keen to ensure that it is able to celebrate its centenary by claiming its achievement of this goal.
Among other factors, many analysts expect a cancellation of the Tokyo Olympics and Paralympics, now slated for July after being postponed for a year, to hit the stock market, but the blow would not be as big. that the Summer Games are already expected. To reduce.
Whatever the course of the pandemic, investors will flock to the winners to fuel the market advance, widening the disparity between good and bad results in 2021, said Sengoku of the Tokai Tokyo Research Institute.
“This will be a year of screening individual issues, not only judging them by sectors, but also assessing each company’s business content and performance,” he said.
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