Japanese brokers highlight ‘Trump trades’ for stocks

Japanese brokers are focusing on stocks primed to benefit if Donald Trump returns to the White House and the US-China relationship deteriorates even further, as global interest mounts in Japan’s rising equity markets.

Nomura, Japan’s biggest brokerage, released a strategy note this week listing more than 50 companies that analysts believe could prosper if decoupling accelerates, Trump offers generous tax breaks in the US and Chinese companies remain reluctant to invest.

Nomura’s research, which its author said had drawn strong interest from fund managers, was published after Trump said this month that he would impose tariffs on China that could exceed 60 per cent and separately vowed reforms that would “completely eliminate” US dependence on the country in critical areas.

In another note published this week, Daiwa Securities analysed the probability of a Trump victory and its potential impact on Japanese stocks, arguing that the US was likely to take a much harder line on China if he won.

The research is part of a growing number of strategies that brokerages are using to draw more global investors into a booming Japanese stock market as the country’s benchmark Nikkei 225 and Topix indices approach all-time peaks reached in December 1989.

Japan’s government and corporate sector have begun quietly recalibrating for a possible Trump victory in November. Government officials in three ministries told the Financial Times that they had held meetings in the past few weeks around the “What if Trump?” theme, wanting to be better prepared than they were when he won the presidency in 2016.

Nomura’s list of winners from more US-China decoupling — a geopolitical outcome widely dreaded across much of the Japanese corporate sector — focuses on companies with sales skewed away from China and towards the US.

It includes the carmaker Subaru, soy sauce maker Kikkoman, construction machinery giant Komatsu and Toyo Suisan, a producer of cheap ramen noodles that have become a huge hit in the US as inflation bites.

“It is not just a matter of China’s economic cycle, it is about the uncertainty that would arise from a Trump victory,” said Nomura’s chief equity strategist Yunosuke Ikeda. “If the trade relationship with the US becomes more uncertain, it will become harder for Chinese companies to make investment decisions.

“Uncertainty is harmful in supply chains, too,” he added. “If Trump wins, Japanese companies will have to think seriously about their Chinese businesses.”

The most recent earnings season in Japan and companies’ forward guidance underlined the potential impact of US-China decoupling, Ikeda said.

Companies with higher US sales beat consensus forecasts, while those with more exposure to Chinese consumer demand and the investment cycle announced what were often disappointing results.

Although some of that divergence arose from the Chinese economy’s stagnancy, Ikeda said US-China decoupling would continue to be a major risk for Japanese companies.

Many globalised Japanese groups have become adept at straddling and navigating the US and Chinese markets even as geopolitics push Washington and Beijing further apart.

A decoupling environment, however, strains those skills and could actively benefit companies such as Seven & i, Taiheiyo Cement, Sony and Kyocera in which the earnings balance is far heavier in the US, Nomura’s report said.