富国生命投資顧問株式会社

Report

Japanese Equity Market

Overview in December 2019

Nikkei225TOPIX

In December, the Nikkei Stock Average rose 1.56%, thanks in part to favorable trade negotiations between the United States and China and the results of the British general election.

The stock market has started to rise on the back of the strong start of the US Christmas shopping season and the improvement of the Chinese business confidence index. Although the market was adjusted due to concerns that the agreement on the US-China trade talks would be delayed, it was resilient thanks to the Cabinet decision on large-scale economic measures.

In the middle of the month, the stock market rose sharply following the postponement of President Trump's fourth round of sanctions on China and the announcement of the ruling Conservative Party's superiority in the UK general election. 

In late December, the stock market was low in volume reflecting many investors, mainly overseas, who went on Christmas holidays but was supported by the strong US market stayed in high prices.

By industrial performance, mining, shipping, and information and communications rose, while rubber, land transportation, and pulp and paper fell.

Outlook for January 2020

Substantial quantitative easing measures, such as the Fed's purchase of U.S. Treasury bills, in addition to the first-stage agreement on U.S.-China trade negotiations are positive factors for the stock market. However, the stock market is likely to enter an adjustment phase due to the continued uptrend in stagnant corporate performance, valuation being somewhat overvalued, and foreign investors tending to oversell in January.

According to the Bank of Japan's Tankan survey in December, the downturn in the manufacturing sector has stopped declining, while the judgment on business conditions in the non-manufacturing sector, which had been concerned about the impact of the consumption tax hike, remained high, albeit worse. According to recent business judgments, large-scale manufacturing is zero, 5 points worse than the previous survey (September survey), and large-scale non-manufacturing is +20, down 1 point from the previous survey. As for the outlook, the manufacturing industry is expected to be zero, and the non-manufacturing industry is expected to be +18. While non-manufacturing has fallen, the fact that manufacturing has been declining for four consecutive quarters and has leveled off can be seen as a sign of change.

The company's financial results for the October-December quarter, which will be announced from late January, are expected to bottom out in the external demand-related sectors such as machinery, chemicals, and transportation equipment, which have been revised downward after the July-September quarter. Corporate earnings are expected to decline for the second consecutive year in FY2019. On the other hand, corporate earnings in FY2020 are likely to increase in sales and profits, especially for foreign demand-related companies. This is because the global manufacturing PMI is improving and the US-China trade war, which has been a risk factor, is easing.

Stock prices have continued to rise due to expectations for the future, despite the difficult business performance, and have historically been somewhat overvalued in valuation. In 2020, business performance is expected to recover, and a scenario of stock price rise throughout the year can be drawn. However, in January, the stock market is likely to adjust due to the uncertainty of the Middle East situation, as well as the tendency of foreign investors to sell every year.