A Silver Lining for the Volatile Nikkei
Earnings estimates for Japanese companies are being upgraded faster than that of firms listed on any other Asian stock market, which is reason enough to buy into the Nikkei despite the recent volatility, says one strategist.
Japan's benchmark Nikkei 225 is down over 16 percent from its year-to-date high and was trading almost 2 percent lower at 13,072 in morning trade Wednesday on disappointment that the Bank of Japan (BOJ) took no action to calm a volatile bond market at this week's central bank meeting.
But Michael Kurtz, global head of equity strategy at Nomura is sticking to his target of 16,000 for the benchmark by the year-end - an over 20 percent upside from current levels - on strong fundamentals like company earnings.
"Let's keep in mind that even with the volatility in bonds and equities recently, there's been no impairment of the medium or long term economic growth outlook, nor has there been any impairment to the corporate earnings growth outlook," Kurtz told CNBC Asia's "Squawk Box" on Wednesday.
Japan's economy grew 1 percent over January to March over the previous quarter, revised up from an initial estimate of 0.9 percent.
In May, Japan's tech giants like Toshiba forecasted a 34 percent jump in operating profit to $2.6 billion for the 2013-2014 fiscal year, while Canon raised its 2013 operating profit forecast by $300 million in April on a weaker yen.
Despite the recent rout, the Nikkei is up over 50 percent since mid-November, when current Prime Minister Shinzo Abe started talking of radical fiscal and monetary policies to boost growth in the world's third largest economy.
(Read More: An End in Sight for Japan's Turbulent Markets?)
Tim Condon, head of Asia research at ING Financial Markets, said he remains bullish on the world's top performing market this year, because the central bank continues to pursue investor friendly policies. In April, the BOJ announced that it would pump $1.4 trillion into the economy in less than two years and double its monetary base to meet a 2 percent inflation target by 2016. It renewed that pledge on Tuesday.
"I'm saying this would be a 60 percent year for the Nikkei," Condon said, referring to the nearly 30 percent jump in equities so far in 2013. "The Nikkei will end the year higher than where it was when the sell-off started in May 22."
"From a macro point of view I like to be in markets where monetary policy is conducive to making money in the equity market," Condon said.
Kurtz, meanwhile, says his top picks for the Nikkei are those that will benefit from domestic "reflation" and corporate investment rather than exporters that have benefitted from a weakening yen, which has largely played itself out this year.
(Read More: Hold On, Japan Still Missing Key Pillar of Growth)
"I want to look at the retailers, property sectors including the home builders, and the financials of course. 'Abenomics' is working," Kurtz said.
— By CNBC.com's Rajeshni Naidu-Ghelani; Follow her on Twitter