Next year could bring more of the same if Goldman Sachs, the venerable Wall Street bank, is accurate in its assessment of Japanese stocks.
“Amid growing skepticism about Abenomics, we expect the government to make steady progress in critical areas during 2014. We expect corporate Japan’s confidence to improve in 2014, triggering both increased capex and higher wages, which should help offset the impact of the value-added-tax hike next April,” said Goldman in a report obtained by Bloomberg.
Goldman boosted its 12-month forecast for Japan’s Topix to 1,450, 16% above Wednesday’s close. The outlook jibes with bullish comments recently made by other observers of Japanese markets. Earlier this week, Daiwa’s chief Japan strategist said “the Japanese economy is just one step away from a virtuous cycle.” [Next Year Could be a Sequel for Japan ETFs]
Nomura sees the Nikkei hitting 16,000 by March 2014 before falling back to 15,000, but added that the decline to 15,000 would set up a move to 18,000 by December 2014. [Best Single-Country ETFs]
Of course, bullish action in Japanese stocks is often the result of bearish action in the yen. The USD/JPY pair does indicate that that hedged currency funds, such DBJP and DXJ, could thrive next year. The reason being is that the pair currently labors around 101, but some global banks forecast a move to 105 to 110 in the coming months on the basis that the Bank of Japan will enact additional easing measures.
Investors looking for a more focused play on the Topix can consider the unhedged $93.6 million iShares Japan Large-Cap ETF (NYSEArca: ITF). That ETF is up almost 20% this year.
iShares Japan Large-Cap ETF
Tom Lydon’s clients own shares of DXJ.