• SHARE

Tokyo stocks are out of the doldrums and now appear poised to lift the Nikkei average back above 12,000, a level unseen for years.

In a rare development for recent years, the closing volume of trading on the Tokyo Stock Exchange’s first section topped 1 trillion yen Monday, mirroring a leap in investor confidence.

Investors are relieved that company profits are expected to turn much higher this year.

The yen’s strong showing has prompted foreign investors to return to the lagging bourse in search of potential gains. Indeed, the Nikkei average has topped the March high in dollar terms.

The recent slew of economic statistics has offered fresh evidence of an economic pickup, indicating the economy hit bottom in February.

The diffusion index of coincident indicators for March hit 56.3, topping the boom-or-bust line of 50 for the first time since December 2000.

Coincidentally, both the economy and the bourse hit bottom at the same time.

One theory is that the stock market foreshadows things in store.

Since 1962, the economy has hit bottom on nine occasions, and share prices rose 21 percent and 29 percent on average in the next six and 12 months, respectively.

If the theory holds, the Topix index will rise to 1,225 in August and 1,300 next February, up from 1,013 at the end of last February.

Past experience shows that industrial sectors often most sensitive to economic recovery include wholesale trade, electric machinery, precision instrument, machinery, service, steel and nonferrous metal issues.

Conversely, the least-sensitive issues include electric power and gas utilities, insurance, financial, real estate and land transportation.

Conventional wisdom suggests that investors will increase the weighting of stocks in their holdings that are sensitive to economic recovery.

Although many contend that those stocks have moved considerably higher since September, judging from the steady economic recovery expected for the coming months, they are left with room to test still higher ground.

Given the pros and cons over prospects for electric machinery shares, they, too, appear likely to attract attention in the coming months.

In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.

SUBSCRIBE NOW