Abenomics is gaining fans from all sides. Hedge funds, other money managers, economists etc. The country reported an impressive 3.5% growth in GDP this quarter. Goldman Sachs has joined the bull crowd. They are out with a new report this morning upping their GDP targets for Japan and the Nikkei price target. Below is the summary followed by the report in scribd.
US investors: Not everyone’s a bull
While many investors we recently met in the US have invested in Japanese equities, not everyone is bullish. Pushbacks to our positive outlook include: skepticism that Abe-nomics will include the “third arrow” of a growth strategy, concerns about recent JGB market volatility/higher interest rates, and questions about who will be the incremental buyer from here. We responded that (a) the Abe regime is likely to prioritize implementation of a growth strategy since we detect a growing sense of urgency regarding fiscal sustainability and demographics within the LDP; (b) as long as interest rates are rising because the economy is recovering, this should not be an obstacle to higher stock prices, and (c) not every foreigner is long or overweight Japan, and domestic retail investors have finally begun buying.
Goldman Sachs: Revising our profit estimates/index targets slightly higher
Since our economists now anticipate an even weaker yen and stronger Japanese GDP growth, we revised upward our earnings estimates and now project a FY2013 EPS of ¥82.8 (4% above our previous estimate), or 69% YoY growth. Reflecting our new earnings estimates, we adjusted our 3/6/12 month TOPIX targets to 1250/1300/1400 (from 1180/1250/1350), or Nikkei equivalents of roughly 15000/15600/17000. While we anticipate a rangebound index near-term as the market digests recent gains, we believe that a combination of a probable LDP victory in the July Upper House elections, growing evidence of a solid macro recovery, positive earnings surprises, emerging signs of inflation, and progress on the government’s growth strategy should fuel the index higher over the coming 6-12 months and beyond. We retain our 2015 index targets of TOPIX 1600/Nikkei 19000.