Tuesday, May 7, 2013

Analysts frantically revising Japanese corporate earnings projections

Analysts' latest adjustments to corporate earnings forecasts for Japanese firms show many more upward than downward revisions. Merrill Lynch tracks the "number of stocks for which consensus EPS estimate has risen vs. the number for which it has fallen" over a 3-month period. That ratio (chart below) has spiked relative to other nations.

Source:  BofA Merrill Lynch Global Quantitative Strategy

Merrill sites the new government's initiatives of fiscal spending, wage growth, and deregulation to stimulate growth as the reason for this optimism. Of course the BOJ's monetary expansion (see post) doesn't hurt either. In spite of projected debt to GDP ratio of 230% by 2014 - the highest in the developed world - Japan doesn't view its government debt to be a serious enough issue. So why not spend some more in order to improve corporate earnings while attempting to exit years of deflation?

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