富国生命投資顧問株式会社

Report

Japanese Equity Market

Overview in January 2019

Nikkei225TOPIX

The stock market in January rebounded due to FRB’s flexible attitude in the monetary policy and expectations for improvement in the US-China trade talks. The Nikkei Stock Average gained 3.79%.

On the first day of the year the stock market fell sharply due to the decline in the US stock market and the rapid appreciation of the yen against the dollar in the foreign exchange market. However the market rebounded because of Fed chairman Powell's talks about flexibility of the monetary policy considering the global stock price depression and because of the expectation for the tone down of trade friction through talks between the US and China.

Into the latter of the month the stock market was in seesawing movement because of the balance between the negative factors and positive factors. Negative factors are that the global economic outlook by the IMF (International Monetary Fund) has been revised downward and that there were also some announcements of disappointing corporate earnings in the October-December or some disappointing earnings guidance for coming period in the latter of the month. On the other hand, the FRB's announcement suggesting a halt in rate hikes was favored, and the stock market went up and down sensitively.

By industry, retailer, foods, chemistry, etc. fell, on the other hand glass and ceramics, pulp and paper, machinery, etc. rose.

Outlook for February 2019

Due to fear of a slowdown in the global economy caused by the trade friction between the US and China, signs of deterioration in corporate earnings, which continued to expand so far, are seen. Although the valuation of stock market is cheap, we are expecting a weak market condition as we are concerned about a downside risk of corporate earnings.

The IMF sets the latest prospects for the global economic growth rate to 3.5% in 2019 and 3.6% in 2020 due to spreading of trade friction and the slowdown in the Chinese economy globally, and in comparison with the previous (October 2018) comparison, 0.2 points down by 0.1 points, respectively. In developed countries, although the United States remains unchanged, the euro area such as Germany where the external demand is weakening are being lowered. Emerging countries such as mainly oil-producing countries are also lowered because of the depreciation of resources due to the slowdown of the Chinese economy. Meanwhile, regarding Japan, although exports are worsening, it has been revised upwards from the view that a series of stimulus measures planned by the government can ease the negative effect of the consumption tax increase.

The investors are very disappointed by the announcement of corporate earnings in industries especially related to external demand such as machineries and electric machineries resulted in October-December quarter. Semiconductor investment and demand for smartphones and machine tools have declined mainly in the Chinese market, and earning-warnings and downwards revision regarding to corporate profits are increasing mainly among machinery and electric machinery companies. The business results for the next fiscal year are expected that a part of domestic demand-related industries such as construction under the execution of large budget will contribute positively but the profit growth of foreign demand-related companies will decelerate due to the slowing growth of the overseas economy.

On the other hand, stock prices have already recovered to a level higher than the 25-day moving average line by the Nikkei Stock Average, in the reaction of the sharp drop in last December. We are expecting that Japanese stock market will be in weak movement, being concerns about worsening corporate earnings and many uncertain factors such as the way of US-China trade talks, the U.S. debt ceiling issue by twisted Parliament, Brexit and so on.