富国生命投資顧問株式会社

Report

Japanese Equity Market

Overview in July 2019

Nikkei225TOPIX

In July, although the US-China trade war concerns receded, the stock market gained a vigilant mood ahead of the FOMC (Federal Open Market Committee) at the end of the month, raising the Nikkei average by 1.15%.

The stock market began to rise sharply after the US-China summit held at the end of last month, which decided to see off additional sanctions tariffs against China and to resume trade talks. Since then, the stock market has continued to make a solid move as the US stock market continued to grow on the back of the possibility of a rate cut by the Federal Reserve Board.

The stock market plunged due to the appreciation of the yen and the depreciation of the dollar at the center of the month, and concerns over deterioration in the performance of foreign demand related companies have increased. However, the stock market rallied from the news that the US-China trade talks progressed near the end of the month, and the view that the semiconductor market would improve in the future.

Although the stock prices of companies that announced severe financial results such as electric machines and machines were weak towards the end of the month, the stock market moved in a narrow range, with expectations for a rate cut ahead of the FOMC.

In terms of performance by industry, insurance, shipping, fisheries, agriculture and forestry were positive, while steel, securities, oil and coal, etc. were negative.

Outlook for August 2019

Although the Fed's monetary easing policy is favorable, corporate earnings in the April-June quarter are expected to be harsh, with a focus on external demand. The stock market will be weak due to the trade negotiations between Japan and the United States and the tendency of foreign investors to sell Japanese stocks in August in general.

With regard to the IMF (International Monetary Fund) global economic growth forecast, in addition to the impact of the US-China Trade War, and due to risk factors such as the EU's withdrawal from the EU and the tightening of the Iranian situation, the outlook for the 2019 and 2020 have been reduced by 0.1 points each from the previous (April forecast).

In the case of major countries, the United States has been revised upward because the actual GDP value exceeded expectations, while China has been revised downward due to the effects of the trade war. The outlook for Japan has also been lowered, mainly due to the increase in the consumption tax rate.

In the April-June quarter results, which have continued to be announced, although some industries such as information services have remained strong, external demand-related matters such as electric machines and machines are affected by the slowing of the Chinese economy due to the US-China Trade War.

Although the market forecast for this fiscal year is increasing sales and profits, the downward revision risk will increase given the announced financial results and the planned consumption tax hike.

With stocks of major countries rising on the back of monetary easing expectations by the Fed, Japanese stocks have lagged and valuations continue to be at a low level.

However, the stock market in August will be weak, in addition to the risk of downward revision of corporate performance, due to the unclear future of the US-Japan trade negotiations and foreign investors who tend to sell over.