Following the first quarter of 2024, the surge in Japan's stock market has noticeably slowed down, with the Nikkei 225 index lingering just below its record high. However, despite this, Goldman Sachs analysts say they do not believe the market requires undue pessimism.
In the first quarter, the Nikkei 225 index once climbed to a record high of 41,087.75 points. But subsequently, the index stagnated below 40,000 points, mainly affected by the weak yen, sluggish economy, and tepid consumer spending.
Although Japanese companies achieved strong earnings in the quarter ending in March, they expressed some disappointment regarding the earnings outlook for the coming quarters.
While there are some short-term headwinds, Goldman Sachs analysts stated that the recent decline in stock prices might be offset by optimism for upward revisions in future earnings guidance.
In a report, Goldman Sachs analysts pointed out that investors familiar with the Japanese stock market are aware that the initial guidance from Japanese companies tends to be conservative.
They mentioned that investors who have newly entered the Japanese market in the past year might have reacted negatively to the conservative guidance. The strong performance of the Japanese stock market has attracted a large number of foreign investors.
Goldman Sachs analysts also expressed optimism about changes in corporate governance structures during the quarterly earnings period.
They highlighted that the "significant increase" in stock buyback announcements is particularly noteworthy, providing value to investors.
