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BLOOMBERG
The rally in Japanese stocks that pushed the nation’s blue-chip gauge ahead of the world’s other major benchmarks this year could slow down.
The Nikkei 225 Stock Average will rise about 1% from current levels to 32,750 by year-end, according to the median estimate of six responses in a Bloomberg News survey. While that would lift the Nikkei to the highest since July 1990, the projected gain is modest compared with the gauge’s 24% jump this year.
Kenji Abe, chief strategist at Daiwa Securities Group Inc, said the tighter spread between the earnings yield on Japanese stocks and long-term US bond yields is a major sign that equities may be overvalued. The gap is about 2%, below the 4% median for the past decade, according to Abe.
Potential headwinds for Japan include the risk of economic slowdowns in the US and China, the world’s two largest economies. Ryota Sakagami, an equity strategist at Citigroup Inc, said the six-month change in the US unemployment rate even suggests the nation’s economy may be heading towards a recession.
China, meanwhile, is undergoing a “severe†inventory adjustment, said Tomo Kinoshita, a global market strategist at Invesco Asset Management. Last month, a report showed China’s purchasing managers’ index (PMI) for May unexpectedly fell, disappointing the market.