Profits picking up after pandemic to keep Tokyo stocks on an uptrend in 2022

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The Tokyo stock market is expected to maintain its bullish momentum through 2022, as a continued rebound in corporate earnings will likely offset lingering concerns about global inflation as well as expectations for the pandemic situation to improve.

Market analysts predict that the Nikkei Stock Average, made up of 225 issues, will hit 34,000, a level not seen since March 1990 and an 18% rise from the closing level on the last trading day of 2021 on the Stock Exchange. Tokyo. The decline is expected to remain around 26,000.

The Nikkei index rose 4.9% in 2021 to end at 28,791.71, a third consecutive year of increase but a smaller gain than the 16% increase of the previous year.

Market officials wearing protective coronavirus masks give an applause ceremony at the Tokyo Stock Exchange after the last trading session of the year on December 30, 2021. (Kyodo) == Kyodo

Along with precision equipment makers, the retail, land and air transportation, and service sectors expected to lead Japan Inc.’s profit growth after restrictions imposed to curb the pandemic reduced demand for releases shopping and travel to place these sectors in the most difficult business environment among other industries.

The tourism industry, for example, is also expected to benefit from the reopening of economic activities in line with the progress of COVID-19 vaccinations, as the government is expected to resume its “Go To Travel” subsidy campaign after the shutdown of the program. nationwide travel promotion. in December 2020 following a spike in new coronavirus cases.

Listed companies are expected to post 8-10% growth in pre-tax profit in the fiscal year ending March 2023, according to estimates from major securities firms.

“Profits are expected to rise by around 10% (in FY 2022) and stocks will recover even if (growth is limited to) only 5%,” said Shingo Ide, chief equity strategist at NLI Research Institute.


Associated coverage:

Nikkei up 4.9% in 2021, best year-end result since 1989


The Organization for Economic Co-operation and Development said in its latest forecast that the global economy will grow 4.5 percent in 2022, while Japan’s is expected to grow 3.4 percent.

The OECD added that “deadlier strains of the virus” could be a blow to the global economy. But market players aren’t too worried about the new Omicron variant of COVID-19.

“Investors will continue to keep tabs on news of the new strain, but hopes for Omicron vaccines should allay any serious fears,” said Maki Sawada, strategist in the investment content department of Nomura Securities Co.

Vaccine makers such as Pfizer Inc. and Moderna Inc. have said that a third injection of their COVID-19 vaccines should provide increased protection against the Omicron variant.

Sawada said new COVID-19 drugs are also likely to ease concerns about the pandemic, helping the market to hit the 34,000 mark by the summer.

Japan has seen an increasing number of Omicron infections, although at a much slower rate than in some other countries. But a resurgence of COVID-19 cases driven by the new variant is unlikely to generate immense nervousness, given reports that Omicron could cause less severe illness than other coronavirus variants, Sawada added.

In the forex market, the US dollar is expected to strengthen further against the Japanese currency at 118 yen after surpassing 115 yen, its highest level since March 2017 at the end of November. The US currency has remained around the 114 yen level recently.

Nonetheless, the Tokyo stock market is unlikely to receive a substantial boost from further depreciation of the yen. A weaker yen increases profits for overseas exporters when repatriated, but investors remain cautious as it also increases import costs at a time when energy and material prices are on the rise. according to analysts.

Soaring raw material and energy costs are among the major risks in 2022. Average gasoline prices in Japan briefly hit their highest level in seven years in 2021.

Reflecting a tight supply chain and increased demand following the reopening of businesses around the world, the U.S. Consumer Price Index for November was up 6.8% from the previous level. previous year, registering the largest increase in over 39 years. Soaring inflation rates in the world’s largest economy caused global markets to fall sharply at some point in 2021.

But market participants are confident the Federal Reserve will tackle inflation risk in due course after Fed Chairman Jerome Powell said in November that the US central bank will step up its reduction in asset purchases. , while its two-day policy meeting in December pointed to three rate hikes. in 2022.

“The Fed’s approach to rapidly increasing prices has allowed market participants to regain a sense of calm as the bank was clear on the need to tackle the problem,” said Masahiro Yamaguchi, head of investment research at SMBC Trust Bank.

Market players will also be paying close attention to the midterm elections in the United States in November. If Republicans regain a majority in the Senate, US President Joe Biden and the Democratic Party “may struggle to push through legislation for the remainder of his term, which will weaken sentiment and lower stocks,” Sawada said .

Another event to watch to see if the ruling Liberal Democratic Party will be able to keep its regime stable is the election to the House of Advisors in Japan, she added.

The Tokyo Stock Exchange is also expected to reorganize its current four trading sections into three sections “Prime,” “Standard” and “Growth” on April 4, but the restructuring is not expected to significantly affect the calculation of the Nikkei Index, according to Yamaguchi.

According to a traditional Japanese stock market proverb, the Year of the Tiger in the Chinese zodiac – this time falling in 2022 – is considered a good year for stocks. However, analysts take the saying with a grain of salt, as Tiger’s last previous years have not seen particularly good performance in the market.

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