Report

Japanese Equity Market

Overview in February 2020

Nikkei225TOPIX

In February, the stock market plunged as the new type of pneumonia spread all over the world and feared that it would affect the global economy. The Nikkei average fell 8.89%.

The stock market was strong, with China's aggressive funding and economic measures, and the U.S. and Chinese governments reducing additional tariffs. However, in mid-February, the stock market was weak due to dislikes such as a sharp fall in real GDP in the October-December quarter.

At the end of the three consecutive holidays, the stock market plunged as new pneumonia spread to Asian countries other than China, as well as to the Middle East, Europe and the United States, and increased attention was given to the global economy. The stock market continued to fall as US stocks declined the most in the past and the government demanded that large-scale events be stopped or postponed to prevent the spread of infection.

By industry, all industries such as steel, securities, and land transportation fell.

Outlook for March 2020

Despite the possibility of a rebound from a reaction to a sharp drop in stock prices or a cut in the Fed's interest rate, the return is likely to be limited due to concerns over the deterioration of the global economy caused by the effects of new pneumonia.

The domestic real GDP growth rate (primary preliminary figures) in the October-December quarter fell sharply to -1.6% (-6.3% annualized) from the previous quarter due to the increase in the consumption tax rate and the effects of the typhoon and warm winter. Apart from public investment, which has been positive due to the increase in budget, private consumption, housing, capital investment, and exports have all declined. In the January-March quarter, negative growth is expected for the second consecutive quarter due to a decrease in inbound demand due to the effects of new type pneumonia and a decrease in exports due to supply chain disruptions. In the next fiscal year, economic activity is expected to stagnate for a while, but is expected to recover moderately on the premise of convergence of new types of pneumonia.

Corporate earnings in the October-December quarter were generally sluggish, with the retail business and automobile-related business more severe than expected. On the other hand, in addition to the strong performance of information services and real estate, some external demands such as electric appliances are showing signs of recovery due to increased demand for next-generation communication standards (5G).

This year, profits are expected to decline for the second consecutive year, as downward revisions due to the effects of new type pneumonia are inevitable. In the first half of the next fiscal year, it is expected that consumption will remain sluggish and production activities will stagnate in the first half. In the latter half, exports are expected to recover mainly from foreign demand-related firms due to the bottoming out of exports due to the easing of US-China trade friction.

On the other hand, the stock price dropped sharply, and technically, the negative divergence rate of the Nikkei Stock Average from the 25-day Moving Average temporarily expanded to nearly 10%, reaching a level that often rebounded from empirical rules. Although there is a possibility of a technical rebound, the return is likely to be limited as the global economy is warned by the spread of new pneumonia. For the time being, it will depend on the news of the new type of pneumonia.