Japanese equities fell back on 18–19 August, weighed down by declines in AI, semiconductor and bank stocks. Nomura Securities’ strategy research team is focusing on stocks for which higher interest rates are expected to have a positive impact on ordinary profit.
Major Japanese equity indices fell sharply on 18 and 19 August. The decline was attributed to falls in AI, semiconductor and bank stocks, while movements in US and South Korean stock futures were said to have a greater impact on Nikkei 225 futures than crude oil prices and interest rates.
Among returns on supply-demand-related factors, stocks with high foreign ownership ratios and margin trading ratios notably underperformed, raising concerns about deteriorating supply-demand conditions. At the same time, EPFR fund flow statistics continued to show capital inflows into Japanese equities, while outstanding margin purchases remained on a downward trend.
Interest and discount expenses have been increasing as a result of higher interest rates, but interest costs on interest-bearing debt are approximately 1.7%. Increases in interest and dividend income, together with price increases, are expected to absorb the higher interest burden, while an annual increase of approximately 40 bp in the interest burden is assumed over the next several years.
Among listed companies, opportunities for the net cash ratio to function effectively are expected to increase, and the assessment presented was that the risk of higher interest rates adversely affecting Japanese companies’ earnings has so far been limited.