Polls conducted at our January macro conferences across Europe and Asia show that most respondents have very low expectations about the outlook for Japanese stocks in 2020.

The nation’s shares can positively surprise investors this year for three reasons, Goldman said: the economic impact from the coronavirus outbreak is likely to be limited, earnings revisions have turned positive and corporate governance is improving.

The Topix index is trading flat this year, and foreign investors sold a net 1.7 trillion yen ($15.6 billion) of Japanese stocks and futures through Jan. 31. The latest average end-2020 forecast in a poll conducted by Bloomberg puts Topix’s upside at around 2% from current levels.

Cosmetics maker Kose Corp. recently slashed its full-year profit outlook by 19%, citing a decline in tourists to Japan due to the outbreak in China. Sony Corp. also mentioned the epidemic as a cause for concern, though it raised its earnings forecast on strong demand for smartphone camera sensors.

Goldman strategists said disappointing earnings should mainly be finished after last year, and that increasing payouts, shareholder proposals and tender offers are reassuring over governance. The broker expects little negative impact from the virus as inbound consumption represents only about 0.8% of Japanese gross domestic product.

If a worst-case coronavirus scenario is averted and global growth re-accelerates later this year, Japanese equities should be well-positioned given the heavy exposure of its indices to global cyclical sectors such as industrials, the strategists wrote.

Bloomberg

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