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Goldman, Nomura See Nikkei Rallying More After Crossing 25,000

The pandemic has done what seven years of Abenomics could not: push Japan’s Nikkei 225 benchmark above the 25,000 mark for the first time since 1991. Now, some prominent market watchers predict the blue-chip gauge to go further next year.

Goldman Sachs Japan Co. and Nomura Securities Co. on Wednesday boosted their outlooks for the Nikkei 225 as well as the Topix index as they see both measures extending rallies into 2021. The Topix erased its year-to-date loss on the same day, while Nikkei closed above the long-elusive level of 25,000 yen.

Goldman has a 12-month Topix target of 1,875 and 27,200 yen for the Nikkei, while Nomura forecasts the Topix at 1,825 by end-2021 and the Nikkei 225 at 28,000 — levels last seen in 1990 when the value of Japan’s equities halved following the bursting of the 1980s asset bubble.

Wednesday’s Close Goldman 12-Month Forecast Nomura End-2021 Forecast
Topix 1729.07 1,875 1,825
Nikkei 25349.6 27,200 28,000

“We see no need to doubt the reality of this rally,” Nomura strategists including Yunosuke Ikeda wrote in a note. With the U.S. presidential race over, “markets appear to be rapidly factoring in the robust recoveries in the economy and corporate earnings that they had tended to overlook in the lead-up to the election.”

For a market heavily dominated by cyclical names and valuations cheaper compared to global counterparts, this could be an opportunity for Japanese equities to catch up. The Nikkei 225 has risen 7.2% this year, trailing the S&P 500’s 9.7% gain. The broader Topix Index is up just 0.5%.

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Japan may also have an advantage given its “steadier” macroeconomic climate compared to Europe and U.S., Nomura wrote, citing the stable political environment under Prime Minister Yoshihide Suga and the milder impact the country has seen from the pandemic to date.

The Suga administration’s market-friendly fiscal and monetary policies and ambitious administrative reforms will also contribute to the boost in Japanese stocks, Goldman Sachs strategists including Kathy Matsui wrote in a note.

Investors should keep watch on cyclical sectors like machinery, electronic components and precision manufacturers, according to both Nomura and Goldman Sachs, with the latter also raising Japan’s chemical and trading sectors to overweight.

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