Wednesday March 31, 5:36 am Eastern Time
New year seen drawing new money to Japan markets
By Fiona Graham
TOKYO, March 31 (Reuters) - Japanese stock markets are expected to be buoyant next
fiscal year, with foreign investors likely to decide it is less risky to be in Japan than out, while
Japanese money stays home in hope of an economic recovery.
Analysts expect the benchmark Nikkei average of 225 shares to move higher as the
economy gets a kick-start from generous government fiscal policy, an ultra-easy money
policy at the Bank of Japan and ongoing corporate efforts to slim down.
By the end of the new fiscal year to next March 31, the key average is expected to rise to 18,100 from this year's close of
15,836.59, according to the average forecast of 10 securities houses polled by Reuters Television. Most of the gains were
expected in the second half of the fiscal year.
Bullish analysts estimated the index could rise as high as 20,000, while bears pegged the figure as low as 15,500.
At the same time, analysts expect domestic investors will be cautious about overseas investments and increase their holdings in
Japanese assets next year.
''They will limit their exchange rate risk and cut down on foreign bonds in the expectation that JGB yields will rise,'' said
Yasunari Ueno, chief market economist at Fuji Securities.
As a result, the normal April pattern of an escalation in capital outflows, as investors return to overseas markets after bringing
funds home before the end of the fiscal year in March, may not be as pronounced this year.
Those funds may not find their way into the stock market, however, as many domestic companies have stock holdings that are
too large already, said Ueno.
''They will only invest the minimum amount (in stocks) because it is uncertain whether the recent stock market rally is really
based on Japanese economic fundamentals or if it's merely a short-lived thing,'' said Hisatoshi Okawa, general manager of the
global investment department at SG Yamaichi Asset Management.
The gap left by domestic institutions may be filled by foreign funds continuing to flow into Japan.
''The higher New York stocks go, the more attractive Japan appears as a hedge against a fall over there,'' said one market
participant.
ING Barings estimates that the potential for foreign buying is enormous, since most foreign institutions hold only half to
two-thirds of a neutral weighting for Japan.
Sectors expected to attract investment in the new fiscal year include communications, technology and consumer electronics.
Analysts added that restructuring efforts at individual companies will be a dominant theme over the next year.
Optimism about restructuring helped the market bounce back after a dip below 13,000 mid-way through this fiscal year, and
earlier this month a single company's restructuring efforts pulled up the entire market in what became known as ''the Sony
effect.''
''There are quite a few genuine plans that aim at making companies profitable,'' said Richard Jerram, chief economist at ING
Barings. He cited leading supermarket operator Daiei Inc and number-two automaker Nissan Motor Co as additional
examples.
''Some companies are succeeding at it more than others, but overall it is a very positive sign,'' he said.
Confidence may ultimately be the key variable in the equation next year, analysts say.
''What has driven the market in the past few years is changing expectations on the economy and profits,'' said Jerram.
But bears maintain that confidence will flounder if public sector stimulus does not feed through to the private sector.
''I don't think there will be a kick-in effect on consumer spending and business. Confidence is low and restructuring and
lay-offs will hurt the consumer,'' said Matthew Poggi, an economist at Lehman Brothers Japan.
Robert Sasaki, head of quantitative strategy at Jardine Fleming, is even more pessimistic.
In an interview with Reuters Television he said, ''While companies are talking restructuring, it is unclear how they are going to
pay for it. We see the present level as the last opportunity to sell.'' |
