Japanese stocks rallied on Monday with the Nikkei hitting 10,000 points for the first time in two months after better than expected U.S. manufacturing data, and according to one analyst, large-cap Japanese stocks are still cheap and will rally even further as the U.S. economy recovers.
Ben Collett, head of Japan Equities for Louis Capital Markets, is bullish on the shares of Bridgestone, Honda , Toyota , and Sony .
“I think that these names can put in a good 4, 5 percent over the next couple of weeks,” Collett told CNBC.
“Long term outlook for global markets for us is based on the U.S. You can easily put 8, 9, 10 percent between now until the end of the year on that.”
The Nikkei 225 is down 2 percent so far this year, compared to a 6 percent decline for other developed markets and Collett believes these large-cap stocks have been mis-priced.
A commodities sell-off will also boost prices for the world’s largest tire and rubber company Bridgestone, according to Collett. Bridgestone shares jumped over 3 percent on Monday after marking a two and half year high on news the company would lift truck and bus tire prices in Japan by an average of 10 percent.
But Collett says investors should “steer clear” of Japanese consumption plays given a likely hike in consumption taxes in the country.
He also says investors should take profits in exporters who depend on a large proportion of their revenue from China. Stocks such as Komatsu, Shiseido, Fanuc and Kubota have rallied between 13 and 15 percent over the last couple of weeks.
“I think that now at these levels, there's no reason to try and get the greedy on that. So from a tactical point of view you want to sell those, move some money into some greater names.”