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The Goldman Sachs analysts believe that the Topix index will touch a high of 2200 points in the short term, a level that will come off as a 3% growth from where it is currently pegged.
With the global economy still receiving skepticism from investors across the board, the Japanese stock market appears to have the kind of glitter that may attract many in the near term. Analysts on Wall Street are becoming more bullish on the Japanese stock market as top indices inked more than a three-decade high.
The Tokyo Stock Price Index TOPIX (INDEXTOPIX: TOPIX), despite its current mild depression, has been recording a steady growth trend for the past 2 weeks. During this time, the index grew to its highest level since 1990, an indication of encroaching health for the market. Besides the Topix, other market performance markers including the Nikkei 225 (INDEXNIKKEI: NI225) have also been on a rampage, adding about 20% since the year-to-date period.
The renewed vigor in the Japanese stock market stems from two major factors including a proposed Corporate Governance restructuring for firms being instituted by Topix and the progress in the debt ceiling talks by President Joe Biden and House Speaker, Kevin McCarthy.
With the current outlook of the market, analysts from American multinational investment banking giant, Goldman Sachs Group Inc (NYSE: GS) believe the interest is still at a low ebb.
“Whereas we believe positioning is stretched among short-term investors such as CTAs (Commodities Trading Advisors), positioning is still light among foreign long-term investors,” strategists Kazunori Tatebe and Bruce Kirk said.
The analysts are particularly hopeful that the corporate restructuring will make Japan an attractive destination for investors who are bound to benefit much more from the new rules being rolled out. The analysts said they see a sustained large inflow into the Japanese equity market “in the event that steady progress with structural changes/reforms strengthens the confidence of foreign long-term investors.”
Japanese Stock Market: Future Outlook
The Goldman Sachs analysts believe that the Topix index will touch a high of 2200 points in the short term, a level that will come off as a 3% growth from where it is currently pegged. While the Goldman Sachs call was conservative, BofA strategies see a 7% upside for the index, with a 2,300 points target and an additional 2,400 points if its bull case scenario were to play out.
The strategists are particularly optimistic that more share buybacks this year will be recorded and help to push Japanese stocks higher. This push will have an undertone on the indices as well.
In all, the analysts agree that the country’s stocks have been growing in tandem with core economic and business growth fundamentals, a move that generally makes the current forward surge sustainable.
“Japanese stocks have not risen out of step with fundamentals, and we see further upside as long as earnings continue to improve,” BofA analysts said in a research note published recently.