StanChart analyst makes the case for Japan’s Topix, Nikkei 225

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on Sep 7, 2023
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  • The Nikkei 225 and Topix indices have done well this year.
  • Analysts at AllianceBernstein believe they are the best stocks in Asia.
  • Standard Chartered believes that corporate reforms will lead to more upside.

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The Topix and the Nikkei 225 indices have done great this year and analysts at Standard Chartered believe that there is more upside. Data by TradingView shows that the Topix index was trading at ¥2,382 on Thursday, a few points below the year-to-date high of ¥2,395. It is hovering at the highest level in more than three decades.

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The Nikkei 2225 index, on the other hand, was trading at ¥33,000, down from the year-to-date high of ¥33,780. 

The bull case for Japan stocks

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On Monday, I wrote that analysts at AllianceBernstein were still extremely bullish on Japanese stocks. Now, another major bank has come out with its bullish case for these equities. 

In an interview with Bloomberg, Standard Chartered’s Abhilash Narayan identified three main reasons why these shares have more upside in the next 12-14 months. First, he cited the corporate reform in the country, which could lead to more dividends and buybacks.

One of the top reforms came from the Tokyo Stock Exchange, which asked companies with low book value to boost their share prices. This can be done by companies buying back their shares and delivering more payouts to investors.

Further, Japan companies have been working to boost their corporate governance, which was recently endorsed by Warren Buffett. Buffett now holds stakes in the biggest trading houses in Japan like Mitsui and Sumitomo.

The analyst also cited the earnings potential for Japanese companies. Most of them, especially those that make most of their revenue abroad, will likely benefit from the strong dollar. At the same time, the Japanese economy is doing well as it expanded by 6%. After adding the 3% inflation, it brings the nominal growth rate to 9%.

Meanwhile, economic data published on Thursday revealed that foreign investors moved to Japanese markets in August. They acquired stocks worth over 531 billion yen a month after they dumped 603 billion worth of stocks.

Topix stock price forecast

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The best way to invest in Japan equities is buying the Nikkei 225 and Topix indices. The Topix is a broad market cap-based index and is often seen as a better gauge than the Nikkei. The latter is an average of 225 companies that are unadjusted for free float.

Looking at the daily chart, we see that the Topix index has been in a strong bullish trend in the past few months. It recently pushed ahead and flipped the important resistance at 2,340 yen, the highest point on August 1st. 

The index has moved above the 50-day and 100-day moving averages while the Relative Strength Index (RSI) moved to the overbought level.

Therefore, the outlook for the Topix index is bullish, with the next level to watch being at 2,500 yen.

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