Recovery expectations to fire up stocks

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There is a good chance the share price uptrend will gain momentum this month amid growing expectations of economic recovery.

With the money flow into the market accelerating, the Nikkei average could soon test the postbubble high of 22,666 set on June 26, 1996.

The favorable supply and demand balance is supported by the successive establishment of investment trusts with an eye toward absorbing fixed-term deposits falling due for maturity in the government-run postal savings system, which amounts to 11 trillion yen in April alone.

Investment trusts were net stock buyers for the 11th consecutive week last week, with purchases exceeding sales by 800 billion yen. They have replaced foreign investors as the biggest driving force in the market.

Corporate sales to liquidate cross-shareholding ties have subsided, helping ease downward pressure on prices.

Market participants have taken comfort from the Finance Ministry’s survey on corporate activity, which shows a 42 percent year-on-year rise in corporate earnings in October-December.

Reflecting improved corporate earnings, capital spending, especially in the field of information technology, is picking up rapidly and becoming a locomotive of the economic recovery. Now that consumer spending is starting to show signs of an upturn, forthcoming economic data, including machinery orders due out Monday, are expected to show favorable figures.

The current correction of information-processing stocks means incentives to buy them are in a transitional period from expectations for growth to actual conditions. Internet-related stocks thus are expected to go through daily adjustments for now.

Nevertheless, buying interest, which has centered on information-processing stocks, will become cyclical and thus add fuel to the market’s sustainable rise.

Investors should remain bullish to take advantage of stock price rises in and after April. Because information-processing stocks appear likely to be caught in a long phase of adjustment, buying interest should be directed to international blue chips and stocks sensitive to economic activity, such as those closely related to capital spending and personal consumption.