Welcome to the latest market insights from Jennifer Davis, a seasoned content writer and financial analyst. In this article, we delve into Goldman Sachs Research's forecast for the Japanese equity market in 2024. With solid global economic growth, stock market reform, and the potential for a 13% rise in the TOPIX index, there are exciting opportunities on the horizon. Join us as we explore the key factors driving this projected rally and what it means for investors.
Solid Global Economic Growth
Global economic growth plays a crucial role in the forecasted rally of the Japanese equity market. With economies around the world expected to experience another year of growth outperformance, including Japan, the stage is set for positive market performance.
Goldman Sachs Research predicts that Japan's real GDP growth will expand by 1.5% in 2024, surpassing the consensus forecast. This growth is driven by factors such as stock market reform and the Tokyo Stock Exchange's company governance reforms, which have been a game changer for the Japanese equities market.
Stock Market Reform and Governance Improvements
The Tokyo Stock Exchange's company governance reforms have incentivized listed companies to boost valuations and earnings, leading to improved market performance. The stock exchange's pressure on corporates to respond to its requests has accelerated corporate governance-related activity among listed Japanese companies.
Investors view the unwinding of Japanese companies' cross-shareholdings as a positive indication of improved governance. As a result, the proportion of stocks trading below book value has declined, and there are signs of significant changes in cross-shareholdings that were once considered untouchable.
Continued stock market reform and governance improvements are expected to drive the Japanese equity market forward in 2024, attracting both domestic and foreign investors.
Foreign Investment and Market Outlook
Foreign investment has been flowing into Japanese stocks, driven by expectations for stock market reforms and positive market sentiment. Investment flows from foreign funds into Japanese stocks rose sharply between April and June, totaling 7.9 trillion yen ($53 billion).
While foreign investors have been selling Japanese stocks in recent months, overall overseas flows remain positive for the year. Additionally, domestic individual investors are expected to become net buyers in 2024 with the launch of the expanded 'new NISA' program, which encourages small investments in the stock market.
These factors indicate a positive market outlook for Japanese stocks, with continued interest from both foreign and domestic investors.
Earnings Momentum and Sector Outlook
Japanese companies' earnings momentum remains strong, with TOPIX earnings per share projected to grow by 12% in 2023, 8% in fiscal year 2024, and 7% in fiscal year 2025.
Recovery in Cyclical Downturns:
Sectors that are recovering from cyclical downturns, such as electrical appliances, raw materials and chemicals, and machinery, are expected to drive growth in 2024.
Information and Communication Sectors:
The information and communication sectors are also predicted to contribute to the overall growth of the Japanese equity market.
These positive earnings projections and sector outlooks indicate promising opportunities for investors in the Japanese equity market.