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Buy of the year: Japanese stocks, says analyst

Japanese pagoda

Japanese stocks are poised to rocket higher and test levels not seen since the 1980s, according to Yves Lamoureux, president and chief behavioral strategist of macroeconomic research firm Lamoureux & Co.

From a technical perspective, Lamoureux notes that the Nikkei 225 Index (^N225) has showed strength by going sideways most of 2016 despite a significantly stronger yen, which ought to have weighed heavily on Japanese stocks.

Lamoureux correctly calls many long-term price swings in various markets and rarely shares his proprietary work. However, he has provided the below chart exclusively to Yahoo Finance, which shows the current “buy” signal in the Nikkei.

Nikkei 225 – Lamoureux and Co. behavioral model

“By May 2017, we target the swing up back to 20,000. But this is part of a much larger pattern that will take us to 30,000. You will see how the same signal launched the Nikkei in 2012,” he says.

From a fundamental perspective, Lamoureux argues that from a societal perspective, Japanese are warming up to immigration in an effort to reverse demographics. In addition, people are underestimating Japan and the power of consensus. “Slow moving at first, the Japanese can act fast once they understand the merits. We look for [BOJ Governor Haruhiko] Kuroda to unveil a shock-and-awe later this month,” he says.

“Ultimately the BOJ and pensions will have bought all available stocks. The BOJ has instructed pension funds to get rid of bonds and buy stocks. The BOJ is buying everything on sight through the purchase of ETFs. [It already owns more than 50% of all Japanese ETFs.] The ultimate unwritten goal is to float up values of the portfolios, as bonds will make the task of creating returns near impossible. Over the next five decades pension funds need to build wealth.”