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Investing.com-- BofA analysts said they were seeing increasing signs of optimism over Japanese equities amid strong quarterly earnings and expectations of more guidance hikes in the coming quarters.
The brokerage said strong gains in Japanese big-cap stocks, index laggards, and inflation-exposed sectors signaled that a “Buy Japan” trend may be underway, and that local stocks were likely to remain elevated after a recent rally.
Japan’s Nikkei 225 and TOPIX indexes hit a series of record highs in mid August, buoyed by a host of strong earnings and signs of resilience in the Japanese economy. A softer yen, amid speculation over the Bank of Japan’s next rate hike, also benefited local exporters.
BofA noted that while overall profits declined in the fiscal first quarter earnings season, U.S. tariff-related headwinds were “not as severe” as markets feared, with the results being viewed as generally solid.
“Despite the decline in profit, companies discussed measures to pass higher costs onto prices and adjust their supply chains, making it easier to visualize a path to earnings recovery,” BofA analysts wrote in a Monday note.
The brokerage noted that Japanese companies provided a largely conservative guidance for the coming quarters, keeping expectations for upward revisions high going into the rest of the fiscal year.
BofA said non-manufacturing sectors were likely to remain in favor for the time being, especially amid increased earnings deterioration in manufacturing and industrial sectors.
The brokerage also noted that U.S. tariffs had triggered fiscal stimulus across major economies, presenting a positive environment for risk-driven markets akin to the post-pandemic rally.
BofA sees share buybacks remaining strong in the coming quarters, especially around the fiscal half-year reporting season.