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STOCK MARKET OUTLOOK: Nikkei To Test 14,500 By Year-End
TOKYO (Nikkei)--While the market is teetering on the brink of a short-term correction phase after its recent meteoric rise, the Nikkei Stock Average may yet approach the 14,500 level by the end of the year, according to Hideo Nagai at PantaRhei Securities Co.
Foreign investors are expected to keep buying stocks amid strong domestic economic fundamentals and corporate earnings, helping the market to regain momentum, he says.
Because some technical indicators suggest overheating, as exemplified by share prices surging about 5% above the Nikkei index's 25-day moving average, it would not be surprising if stocks soon took a breather, he adds.
The correction phase will be short-lived, Nagai predicts. The corporate business outlook survey in the July-September quarter showed that the economic recovery is becoming entrenched, macroeconomic indicators remain robust and the end to deflation is becoming a reality, he notes. He expects more firms to upgrade their earnings forecasts when they announce their first-half results, particularly among banks and other sectors that are acutely sensitive to economic conditions.
The supply-demand picture is also improving, Nagai says. Individual investors have wrapped up their selling and have resumed placing buy orders, he notes. The planned October start of mutual fund sales at post offices is also seen lending buoyancy to stock prices. And because domestic institutional investors understand the risks involved in not holding Japanese shares, he expects them to boost their allocations in the near future.
In Nagai's view, the biggest risk factor for the market is U.S. stocks. If the correction gains strength, it may unleash a sell-off of Japanese shares as investors look to lock in profits, he warns.
(The Nikkei Financial Daily Wednesday edition)