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4 Top Japan Stocks To Buy On Abe's Overwhelming Win

By Zacks Investment ResearchStock MarketsOct 24, 2017 12:05AM ET
www.investing.com/analysis/4-top-japan-stocks-to-buy-on-abes-overwhelming-win-200220752
4 Top Japan Stocks To Buy On Abe's Overwhelming Win
By Zacks Investment Research   |  Oct 24, 2017 12:05AM ET
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Japanese Prime Minister Shinzo Abe’s sweeping election victory paves the way for ultra-easy monetary policies that have driven stocks to the highest level in two decades. With more money expected to be circulated in the economy, the Japanese yen fell against the U.S. dollar.

A weaker yen generally bodes well for Japan’s exporters. In fact, the country’s exports grew for the 10th straight month in September on higher overseas demand. Banking on the bullish trends, investing in sound Japanese exporters appears judicious.

Abe’s Big Win

Abe’s Liberal Democratic Party (LDP) secured a thumping victory in early parliamentary election. His ruling coalition scored a two-third majority in the Lower House election. The party secured 313 seats in the 465-seat lower house. LDP alone won 284 seats, giving the 63-year-old political veteran a mandate for reform, both constitutional as well as economic.

Abe’s gamble on an early election paid off, despite pre-poll elections showing a drop in his approval ratings. His victory gave him a chance to lead Japan through 2021, and the landslide win decimated his weak opposition.

Among the opposition parties, the Constitutional Democratic Party (CDP) won only 54 seats. The party was established about two weeks ago by former Chief Cabinet Secretary Yukio Edano. Governor Yuriko Koike’s Kibo no To (Hope) party secured just 49 seats, which she called a “tough result.”

Japan Stocks at Two-Decade High, Yen Weakens Against Dollar

Financial markets cheered the victory of Japan’s pro-business Prime Minister. The Nikkei Stock Average went up 1.1% to 21,695 on Oct. 23, its highest peak in two decades. The benchmark index also posted its 15th consecutive rise and its longest winning streak in almost 70 years. The broader Topix index also added 0.84% to finish at 1,745.25 points.

The Japanese yen, on the other hand, fell to its lowest level against the dollar since July amid expectations of ultra-loose monetary policy by the Bank of Japan (BOJ). After all, Abe’s victory has given hopes that BOJ’s monetary easing, including moves like introducing negative interest rates and an innovative yield-curve control program will persist. This in turn will increase the country’s money supply, causing a proportional long run depreciation of its currency and supporting Japan’s exporters in the global markets.

Let us not forget that Abe’s economic steps—better known as “Abenomics”—are based on “three arrows,” one of which includes monetary easing. The other two are fiscal stimulus and structural reforms.

Japan Exports Rise for 10th Straight Month

Meanwhile, Japan’s trade surplus leaped on strong exports to the rest of Asia. Japanese exports climbed 14.1% to 6.8 trillion yen ($60.3 billion) in September from a year ago. The gains marked the 10th straight monthly improvement, banking on a recovery in overseas demand and a weaker yen. Exports to China, in fact, surged 29% after its economy performed better than anticipated this year.

Analysts are further expecting an uptick in export growth, thanks to a rise in demand in the holiday shopping season. An Oct. 1 BOJ report showed that confidence among Japan's largest manufacturers is at the highest level since 2007. On the same day, the International Monetary Fund raised its forecast for Japan’s economic growth to 1.5% for 2017 and 0.7% for 2018, up from its July projections of 1.3% and 0.6%.

4 Solid Choices

Abe’s landslide victory is a shot in the arm for major Japanese exporters, which should see stronger profits from a weaker yen. This calls for investing in such stocks which also flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Kyocera Corp (NYSE:KYO) produces and sells industrial components, as well as telecommunications and information equipment worldwide. The company was founded in 1959 and is headquartered in Kyoto.

Right now, the company has a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for its current-year earnings rose 16.3% over the last 60 days. The stock has returned 32.9% on a year-to-date basis. The company’s expected growth rate for the current year is 21.8%, higher than the industry’s estimated growth of 15.1%.

Canon Inc. (NYSE:CAJ) is a manufacturer of office multifunction devices. The company has manufacturing subsidiaries in various countries, including the United States, Germany, France, the Netherlands, Taiwan, China, Malaysia, Thailand, Vietnam and the Philippines. Founded in 1933, Canon is headquartered in Tokyo.

The company currently has a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for its current-year earnings has increased 6.1% in the last 60 days. Canon has yielded a return of 27.6% so far this year. The company’s projected growth rate for the current year is 47.3%, which outpaces the industry’s projected growth of 21.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Sony Corp (T:6758) (NYSE:SNE) manufactures and sells electronic equipment, instruments, and devices for consumer, professional, and industrial markets worldwide. The company was established in 1946 and is headquartered in Tokyo.

Currently, the company has a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its current-year earnings has improved 0.4% in the last 60 days. The company has given a return of 33.8% on a year-to-date basis. Furthermore, Sony’s expected growth rate for the current year is 362.8%, way higher than the industry’s estimated growth of 2.2%.

Mitsubishi UFJ Financial Group, Inc. (NYSE:MTU) is a leading financial exporter. It provides financial services not only in Japan but also to a foreign firm or individual. The company was set up in 1880 and is headquartered in Tokyo.

The company has a Zacks Rank #2 (Buy) right now. The Zacks Consensus Estimate for its current-year earnings advanced 1.6% in the last 60 days. On a year-to-date basis, Mitsubishi has given a return of 5.6%. In fact, the company is expected to end the year in the positive territory.

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4 Top Japan Stocks To Buy On Abe's Overwhelming Win
 

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4 Top Japan Stocks To Buy On Abe's Overwhelming Win

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