With the  Japanese index has now lost about one fifth of its value since May, investor concerns are growing that Abenomics has lost its momentum and Japan’s bull market has come to an end. Contrary to this view, today Goldman Sachs Group Inc (NYSE:GS) maintain medium-term positive stance and a NIKKEI 225 (Nikkei Indices:NI225) target of 17,000. This follows a bullish report from Nomura, which calls for an 18,000 price target on the Nikkei.

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Goldman Sachs’s View on Nikkei

Goldman Sachs Group Inc (NYSE:GS) Analyst Kathy Matsui & team said that the growth strategy approved by the Cabinet on June 14 is focused on industrial revitalization, creation of new markets, and globalization. A strong near-term emphasis will be placed on boosting corporate capex. In contrast to previous growth strategies, this one contains KPIs (key performance indicators) and implementation timetables. While a corporate tax rate cut and labor redundancy laws were omitted, our view is that a tax cut is a question of when, not if, and more flexible labor laws will come after deregulation unlocks new employment opportunities. Implementation is obviously key, but we believe reform momentum will continue after the July 21 Upper House elections with a second phase of the growth strategy, including investment tax incentives, labor market reforms, and a new energy plan.

Moreover, they believe the recent correction provides a “second chance” for investors who have yet to participate in the Japanese stock market such as foreigners who remain underweight Japan, and domestic investors such as individuals/investment trusts, Corporate (buybacks), and potentially the GPIF.

Their conclusions are:

  • Abenomics is unlikely to cease after the Upper House elections, and we anticipate continued reform momentum, growing evidence that the economy is exiting deflation, and potentially more stimulus measures ahead.
  • Despite the yen’s rise, the improvement in macro fundamentals reinforces our outlook for V-shaped earnings rebound, and given even more compelling valuations, we still see potential upside for the equity market.
  • The market’s pullback offers another opportunity to invest in our preferred themes of reflation and consumption, as well as attractive but oversold stocks.

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