JPMorgan picks 'high-quality' Japanese stocks to buy after recent sell-off

Published Tue, Nov 30 20216:30 PM EST

JPMorgan says it's time to buy these "relatively high quality" Japanese stocks following a recent steep drop in global share prices triggered by the discovery of the omicron Covid variant . "Looking at relative valuations and investor sentiment, we believe Japanese stocks are already close to the negative pole," they said. As the pullback in global markets winds down, the analysts said "laggard" Japanese stocks are likely to rebound as they catch up with their peers elsewhere in the world. "We think stocks with relatively high quality and expected profit growth in the next fiscal year, and that are not herding names, might be promising," they said. Herding names, which the JPMorgan analysts see being sold off in a risk-off scenario, refer to stocks that are driven by investor sentiment rather than fundamentals. CNBC narrowed the list of JPMorgan's stock picks to those with a market cap of at least five trillion Japanese yen (about $44 billion) as of Nov. 26. In the electronics space, the investment bank has identified PlayStation-maker Sony Group and industrial automation and inspection equipment manufacturer Keyence . JPMorgan also likes human resources firm Recruit Holdings , owner of jobs and salary site Glassdoor. Elsewhere, med-tech firm Hoya , air conditioning manufacturer Daikin Industries and automatic control equipment maker SMC were also identified by JPMorgan. SoftBank Corp., the telco arm of Japanese conglomerate SoftBank Group, was also on the list. Stocks' recent plunge on Covid fears As of its Tuesday close, Japan's benchmark Nikkei 225 has tumbled nearly 6% in three sessions as the new Covid strain sent jitters through global markets. Following a positive start Tuesday, the Nikkei 225 erased earlier gains and fell rapidly after Moderna CEO Stephane Bancel told the Financial Times that he expects existing vaccines to be less effective against the new variant. Bancel told CNBC on Monday that it could take months to develop and ship an omicron specific vaccine . "We think the risk of a prolonged or worsening share price correction is low, given both fundamentals and supply-demand factors," analysts at JPMorgan wrote in a Nov. 29 note. "It can be inferred that Friday's movement was not based on fundamentals, but rather the decline in share prices was driven by strong temporary demand that was highly speculative." To be sure, the sell-off was not unique to Japan, with U.S. stock futures also falling sharply on Tuesday following the Financial Times report . On Friday, the Dow Jones Industrial Average stateside saw its worst day of 2021 on Friday .

Employees work in the trading room at the Daiwa Securities Group Inc. headquarters in Tokyo, Japan, on Thursday, Oct. 14, 2021.

Toru Hanai | Bloomberg | Getty Images

JPMorgan says it's time to buy these "relatively high quality" Japanese stocks following a recent steep drop in global share prices triggered by the discovery of the omicron Covid variant.