By Michael Kitchen, MarketWatch
LOS ANGELES (MarketWatch) -- After this year's rollercoaster ride, Japanese stocks look set to continue their rebound from March lows, while strength in the yen is likely to ease, according to 2010 predictions from analysts.
"We are bulls," declared analysts at Macquarie Equities Research in a recent note. "We think that the sell-side earnings forecasts for this fiscal year need to be raised very materially and that upward earnings revisions will keep foreign investors engaged through the February 2010 reporting" season.
Further into the year, the Macquarie analysts said, retail investors could "take control of the market," and a return of initial public offerings could further boost the market.
The analysts set a 12-month target of 1,050 for the broad Topix Index, which was trading up 1% at 912.1 in early Thursday afternoon trading.
The Topix target "prices in the slow growth recovery and prices in the cycle," they said.
Bank of Tokyo-Mitsubishi UFJ analysts led by Naomi Fink agreed that Japanese shares look set to continue gains, though they also highlighted risks, including a halt to the U.S. recovery.
"If the U.S. does fall prey to a double-dip [recession], Japanese stocks will most certainly feel the effects," they said.
But even in that case, the Mitsubishi UFJ analysts said, Japan's markets could still head higher.
"Japan should remain a safety play in this instance, and we thus look for the Nikkei to recover versus the S&P [500 Index] in the first half of 2010," they said.
But Fink and her colleagues also warned of probable Nikkei dips below the 10,000 level and even a "potential drop to 9,000," though they would recommend buying at that point.
Still, if political events put the privatization of Japan Post Holdings Co. "back on the table" then the Nikkei 225 Average could hit 14,000, they said. The postal-service-and-financial giant had been slated for privatization under the previous government, but the newly elected Democratic Party of Japan-led administration is rethinking the idea.
The Tokyo Stock Exchange managed to rally in late Thursday trade, with the Nikkei 225 Average up 1.5% at 10,536.0, catching up to regional gains Wednesday, when the market was closed for the Emperor's Birthday.
Those gains were echoed elsewhere in Asia, with Hong Kong's Hang Seng Index up 1%, the Shanghai Composite higher by 1.8%, Taiwan's Taiex rising 0.9%, and Australia's S&P/ASX 200 and South Korea's Kospi each gaining 1.1%.
Picks for 2010
In terms of specific picks, the Macquarie team touted the concept of "global survivors," a class of "multinationals with production facilities and distribution networks already established in emerging markets."
The global survivors would be well position to grow revenue and could cut costs without having to raise capital through new stock issues, they said.
While the analysts stressed that the global survivors represented a theme rather than any single stock, they listed their top-five picks for the category as Nippon Steel Corp., Panasonic Corp., Canon Inc., Bridgestone Corp., and Toyota Motor Corp.