NKD Long: Invest Strategically in Japanese Equities Ahead of 2025 Upside - citi
NKD still a fav for 2025.. here's some thoughts from citi..
Recommendation: Invest Strategically in Japanese Equities Ahead of 2025 Upside
Based on Citi’s projections, Japanese equities present an attractive long-term opportunity for investors looking to capitalize on structural and macroeconomic tailwinds. While the first half of 2025 may see subdued performance due to macroeconomic headwinds and conservative profit guidance, the second half is expected to be a breakout period with record highs in both the TOPIX (target: 3,200) and Nikkei 225 (target: 46,000).
Key Factors Supporting the Recommendation:
Corporate Earnings Resilience: Despite cautious guidance, Citi anticipates actual earnings to outperform expectations, driven by inflation-led pricing power and recovering domestic demand.
Structural Reforms: Corporate governance improvements, including higher return on equity (RoE) and return on invested capital (RoIC), are likely to elevate valuations across sectors.
Fiscal Stimulus and Wage Growth: Domestic demand recovery, supported by fiscal measures and rising wages, will likely act as a catalyst for broad market gains.
Inflation Dynamics: Sustained inflation will enable companies to maintain pricing power, boosting margins and profitability.
Suggested Strategy for Investors:
First Half 2025: Build Positions Gradually
Take advantage of market softness in early 2025 to accumulate quality Japanese equities, particularly in sectors benefiting from pricing power, such as consumer goods and industrials.
Consider ETFs tracking the Nikkei 225 or TOPIX for broad exposure.
Hedge against potential yen strength by using currency-hedged instruments if needed.
Second Half 2025: Stay Long for Record-Breaking Gains
Shift focus to cyclical and growth-oriented sectors poised to benefit from the anticipated year-end rally, including technology and financials.
Monitor government and TSE initiatives that emphasize governance and capital efficiency, as companies implementing these reforms are likely to outperform.
Risks to Monitor:
Unexpected U.S. trade policies or tariffs targeting Japan.
Faster-than-expected monetary tightening by the Bank of Japan (BoJ).
Delays in domestic demand recovery or fiscal stimulus implementation.
