Nikkei average forecast for end-2016 lowered to 15,250-17,250 - Nomura

Research Team at Nomura, has lowered their end-2016 Nikkei Average forecast to 15,250-17,250.

Key Quotes

“The financial markets have been shaken by the Brexit shock (the UK public voting in favor of exiting the EU). With the intention of lessening the shock, the G7 finance ministers and central bank governors have issued a statement emphasizing that they are prepared to implement liquidity supply measures. The FTSE 100 fell substantially straight after opening on 24 June but then recovered to a decline of 3.2%, but euro stocks only rallied slightly and closed 8.6% down, and the S&P 500 fell little by little and closed 3.6% down. During trading hours the VIX index fell below 20 for a time, but then climbed and closed around the top of its range at 25.8. We see few signs that the markets have regained their composure. The 24 June TOPIX index represents a P/B of 1.03x on FY2015 earnings, and a P/E of 13.4x on our top-down forecasts for FY16.

We revise our views on Japanese equities. We lower our end-2016 Nikkei Average forecast to 15,250-17,250 (previously: 17,500-20,000). Assuming USD/JPY of 95-105, we now expect TOPIX-EPS of 90.0 (previously: 98.0) in FY16, and 94.5 (102.5) in FY17. We also lower our view of TOPIX’s end-2016 P/E from 15x to just under 14x, since we think that earnings recovery will be slower than we had previously forecast. For the time being, we see a need for concern over a degree of yen appreciation. Our new share price targets reflect our view of the need to acknowledge a reasonable likelihood of a return to the investment conditions seen before Abenomics.”