By Ayai Tomisawa
TOKYO (Reuters) - Japanese stocks will gain another 4 percent by end-December as stimulus measures in China, one of the country's most important markets, counter weak domestic demand, a Reuters poll found.
The Nikkei share average has already gained around 7 percent so far this year, buoyed by hopes that the United States and China are making progress in talks aimed at ending their trade war, which has hurt Japan and other export-reliant Asian economies.
Median estimates from 24 analysts and fund managers polled by Reuters in the past week put the Nikkei at 22,300 by year-end, compared with 20,014.77 at the end of 2018 and Tuesday's close of 21,449.39.
The forecast for the index in mid-2020 was 24,000.
"We expect the Chinese economy will bottom out this year helped by its stimulus measures, while concerns about U.S.-China trade wars will recede. Emerging markets' economies will likely recover as well," said Masashi Akutsu, chief equity strategist at SMBC Nikko Securities, who expects the Nikkei to reach 24,000 by end-2019.
China's economy grew at the weakest pace in nearly three decades last year amid weakening domestic demand and U.S. trade tariffs, prompting Beijing to announce a series of growth-boosting measures to avert the risk of a sharper slowdown.
Beijing is likely to unveil more fiscal stimulus during the annual parliament meeting in March, including further tax cuts and more spending on infrastructure projects, to support growth.
U.S. President Donald Trump said on Monday he may soon sign a deal with Chinese President Xi Jinping to end their trade war if their countries can bridge remaining differences, saying negotiators were "very, very close" to a deal.
NEGATIVE RISKS
While market watchers expect Japan's equities market to improve this year, many cited concerns about an expected blow to consumption from a planned sales tax hike in October.
"Domestic consumer sentiment is likely to worsen at the scheduled tax hike," said Hiroyuki Ueno, a senior strategist at Sumitomo Mitsui Trust Asset Management.
Indeed, analysts expect the Nikkei to dip 3 percent in the second half of this year, from 23,000 at end-June to 22,300 at end-December.
Forecasts for mid-2019 ranged from 20,000 to 24,500. For end-2019, the range was 18,000 to 27,000.
"Retail sales are expected to decline significantly and retail companies will probably refrain from raising prices. The country has a risk of going back to deflation," Ueno said.
Japanese companies' earnings outlook remains murky, with many manufacturers slashing their annual profit forecasts for the year ending March, hit by slowing demand from China.
Companies will likely report a 0.3 percent drop in their profits on a pre-tax basis for this fiscal year, according to data compiled by Daiwa Securities.
"Japanese companies' earnings have peaked out. Their earnings are supported by foreign demand and not by domestic demand," said Shinichi Ichikawa, chief market strategist at Credit Suisse (SIX:CSGN). "Domestic demand is weak as it has a structural problem with the declining population and aging society."
Ichikawa forecast the Nikkei to drop to 20,000 in June and 18,000 in December.
The Cabinet Office data last week showed that Japan's economy bounced back in the fourth quarter as business and consumer spending recovered from the impact of natural disasters, but trade frictions and a proposed sales tax hike are expected to hinder growth in 2019.
A Reuters monthly corporate survey out last week showed 56 percent of more than 250 companies polled predict domestic investment in factories and equipment will be flat in the next fiscal year that starts in April.
(Additional polling by Manjul Paul and Sarmista Sen; Editing by Kim Coghill)