The Zacks Analyst Blog Highlights: Kyocera, Toyota Motor, Nippon Telegraph and Telephone, Canon and Nidec
CHICAGO, Nov. 20, 2014 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Kyocera Corp. (NYSE:KYO-Free Report), Toyota Motor Corp. (NYSE:TM-Free Report), Nippon Telegraph and Telephone Corp. (NYSE:NTT-Free Report), Canon Inc. (NYSE:CAJ-Free Report) and Nidec Corp. (NYSE:NJ-Free Report).
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.
Here are highlights from Wednesday's Analyst Blog:
Japan Stocks in Focus on Abe's Snap Election
The Japanese economy is making headlines too often these days. After the monetary stimulus announcement by the Bank of Japan (BoJ) and reports that the economy has slipped into a technical recession, Japan's Prime Minister Shinzo Abe has now called for a snap election in mid-December -- an early election two years ahead of the scheduled one. Also, Abe delayed plans of hiking the unpopular sales tax.
This consumer tax had been vital behind pushing up the GDP for one quarter, but then dragged the same into contraction for two consecutive quarters and led the economy into a technical recession. The proposed sales tax hike from 8% to 10%, scheduled for Oct 2015, is now delayed by 18 months.
The sales tax hike proposal has now led Abe to call for the early election, as he wants to boost support for delaying the sales tax hike decision and to add the much-needed momentum for his Abenomics growth strategy. Abe acknowledged that another sales tax hike would severely dampen consumer spending and endanger efforts to counteract deflation.
Snap Election: Why Now?
Political power is not likely to shift following this election. Abe is still expected to win majority. Abe's Liberal Democratic Party ('LDP') is significantly ahead of the closest rival Democratic Party of Japan ('DPJ'). Abe's coalition now has a two-third majority in the country's lower house.
Abe's support rating has dipped below 50%, which nonetheless is high according to Japan's trend. If LDP loses 30-40 seats it would still have majority along with the support of Komeito party. Thus, Abe's claim to resign if he loses majority is very much unlikely. Also, a win now would make him the prime minister for another term. This should be a positive for the economy, as the country would prefer a stable government.
So the election can be seen as a reaffirmation of his support. Abe said: "I have had to make a critical decision so I feel I must seek an immediate mandate from the public. I will ask voters to deliver their judgment."
Snap Election Win Should Help Abe Implement Reforms
A confident Abe believes his policies are well on track and challenged rivals to come up with an alternative. When Abe was elected prime minister in 2012, he had pledged to revive growth by bringing in hyper-easy monetary policy, reforms and spending.
Abe said: "I am aware that critics say 'Abenomics' is a failure and not working but I have not heard one concrete idea what to do instead... Are our economic policies mistaken, or correct? Is there another option? This is the only way to end deflation and revive the economy."
Abe is now focused on bolstering growth and fighting the deflation evils. There are chances now that Abe will announce another round of stimulus package worth 2-3 trillion yen.
Sales Tax Hike Delayed After Dragging Japan into Recession
Abe said: "I've listened to lots of opinions… and taking those into account, and to ensure that Abenomics will succeed, I decided today to postpone the consumption tax hike by 18 months to April 2017." The delay in sales tax hike was termed as a "grave, grave" decision by Abe. The decision comes as the Japanese government is struggling to beef up consumer expenditures while fighting against the deflationary pressure. Abe has, however, ruled out possibility of delaying the sales tax hike again.
The sales tax hike that Japan implemented in April might have played an adverse role. The taxes were hiked from 5% to 8%. Economists had rightly predicted that the hike will affect demand while capital expenditure and consumption were braced for a sharp decline. The hike in sales tax in April led to annual consumer inflation dropping to 1% in September.
Incidentally, when Japan had hiked the sales tax from 3% to 5% in 1997, the economy sank into recession soon afterwards.
The sales tax hike had helped Japan's first quarter GDP numbers, as consumers spent a lot more then to beat the price hike. However now, Japan's economy contracted for the second successive quarter, surprising economists and market watchers. GDP declined 1.6% in the Jul-Sep period, following a contraction in the second quarter. Second quarter's contraction was revised from the earlier estimate of 7.1%, to a marginally worse number of 7.3%. (Read: Japan Contracts Again)
The factor which made a clear impact was a less-than-expected increase in consumption demand. Private consumption makes up 60% of the country's economic activity. This metric increased by 0.4%, from the second quarter which was 50% lower than most estimates.
Japan was already finding it difficult to tide over the impact of the increase in consumption tax. Also, the central bank had increased monetary stimulus recently as its inflation target of 2% looks increasingly unattainable. BoJ governor Haruhiko Kuroda had stepped up the ambitious monetary stimulus to resuscitate the Japanese economy. Kuroda warned that the country is at a 'critical moment' in its fight to get out of deflation. (Read: What Bank of Japan Stimulus Means for U.S. Stocks).
Markets React
Following the announcements of snap election and delaying tax hike, both Nikkei and the broader Topix gained in the initial hours. Topix had gained 0.4%, hitting an eight-year high. However, the benchmarks erased most of their gains by the closing bell, mostly due to profit booking. US markets also extended their record highs.
Later in the day, the BoJ concluded its two-day policy meet. BoJ stated: "The Bank of Japan will conduct money market operations so that the monetary base will increase at an annual pace of about 80 trillion yen."
Among the Japanese ADRs that scored decent gains following the announcements were Kyocera Corp. (NYSE:KYO-Free Report), Toyota Motor Corp. (NYSE:TM-Free Report), Nippon Telegraph and Telephone Corp. (NYSE:NTT-Free Report), Canon Inc. (NYSE:CAJ-Free Report) and Nidec Corp. (NYSE:NJ-Free Report). These stocks gained 4.9%, 2.7%, 1.3%, 1%, 0.8%, 0.8% and 0.8%, respectively.
Canon carries a Zacks Rank #1 (Strong Buy), while Kyocera currently holds a Zacks Rank #2 (Buy). On the other hand, Sony, Toyota, UBIC and Nidec Corporation has a Zacks Rank #3 (Hold), but Nippon Telegraph carries a Zacks Rank #4 (Sell).
A Positive Scenario?
Analysts are of the view that the delay in tax hike will boost stocks, at least in the current economic scenario. Abe's most likely win in the upcoming election will give him scope to implement more policies, which nonetheless are crucial for economic growth. Corporate tax and labor market reforms will be pushed through.
Both the Nikkei and Topix are significantly up year to date and the momentum should continue now. Meanwhile, weakness in yen has been a positive for many Japanese companies. A weaker yen makes exports cheaper, leading to a positive impact on trade balance. Abe himself commented: "Its (weak yen) positive for exporters and companies doing business overseas."
So, it's important to identify the winners while being watchful on the developments in Japan. A steady government, Abe's economic reform policies and the delay in the highly unpopular sales tax hike should help investors gain.
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.
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