Nikkei Weekly Outlook: More Upside Post-Golden Week?

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What to watch: Monday and Tuesday, May 5-6: Nothing — TSE closed (trading resumes Wednesday); Earnings season also resumes; Friday, May 9: Index of Business Conditions (Cabinet Office)

Ongoing: As always, external factors will impact domestic equities; however at present, conditions seem favorable given the weakening yen (now around ¥105/$1) and an accommodative Fed on all fronts. Concurrently, that the Japanese government is protectionist or that the Bank of Japan is helpless seems to be beside the point. Meantime, the ongoing question is whether Japanese stocks represent true value or instead, if the apparent value is merely an unobtainable mirage for gaijin investors.

Markets: Barring a major sell-off overseas over the next two days, Japanese stocks could gap up to start the trading week for a third-consecutive week. Nikkei 225 futures in Chicago ended higher by 105 points on Friday at 14,225, compared to a 270 point rise to 14,060 Friday in Osaka. Last Monday, we saw 14,000 again for the Nikkei 225 Stock Average for the first time since February 27. After falling back as low as 13,727 on Thursday, the Nikkei rallied on Friday to close at 14,049. Post-Golden Week we’ll at least be looking for more upside at the outset, some potential profit-taking and for the sake of the bulls, at least holding 14,000 by week’s end. As mentioned last week, the 25 DMA of TOPIX-1 advancers/decliners remains at an elevated level: 118.20 (vs. 115.5 and 114 in the prior two weeks).

This is an elevated level, especially since last summer, but may not precipitate massive profit-taking given the limited trading activity and intra-week weakness that has resulted in back-to-back bullish Friday sessions.

Therefore, we more or less expect more of the same like we’ve seen in recent weeks.

Select earnings releases this week include: Thursday, May 8: Kagome (JP: 2811), Oriental Land (JP: 4661), Kose (JP: 4922), Bridgestone (JP: 5108), Okuma (JP: 6103), Toyota (JP: 7203) [[TM]], Don Quijote (JP: 7532), Olympus (JP: 7733), Seven Bank (JP: 8410), Takefuji (JP: 8564) (TAKAF.PK), Acom (JP: 8572) (ACMUY.PK), Promise (JP: 8574), Nippon Express (JP: 9062), SECOM (JP: 9735), CSK Holdings (JP: 9737), Softbank (JP: 9984) (SFTBF.PK); Friday, May 9: mixi (JP: 2121), Nihon M&A Center (JP: 2127), McDonald’s Holdings Japan (JP: 2702), Ajinomoto (JP: 2802), Toray (JP: 3402), Wacoal (JP: 3591) [[WACLY]], DaVinci Advisors (JP: 4314), Takeda Pharma (JP: 4502), Round One (JP: 4680), Konica Minolta (JP: 4902), Keyence (JP: 6861), ORIX (JP: 8591) [[IX]] and Tokyu Land (JP: 8815).

Weekly recap: The Nikkei 225 gained 1.3% last week ending at 14,049.26, peaking at 14,072 on Friday and hitting a weekly low of 13,727 on Thursday. TOPIX 1st Section ended the week at 1,377.39. The last time it traded/closed above 1,400 was January 11th/10th.

As of Friday’s close the N225 is trading at 16.1x trailing and 16.3x forward earnings, 1.62x book, 1.4% trailing yield and 1.5% forward yield. By comparison, the broader TOPIX (1st Section) is trading at 18.1x trailing earnings, 17.1x forward earnings, 1.5x book, 1.6% trailing yield and 1.7% forward yield.

Nikkei 225 Chart May 2, 2008