The  Department of Analysis of Bankinter  points out in its  Strategy Report Second Quarter 2018  its  forecast for 2018 and 2019 Nikkei.

Nikkei forecast for 2018 and 2019

Forecast analysis of Nikkei

We reduce our target price for selectively to 22,998 points (from 25,211 the previous points).  This is an implicit level of 18,6x PER and  a potential revaluation of + 7.9%  from current levels of contribution. Thus, we maintain neutral recommendation. In our opinion, the potential must be placed at least +15% / + 20% to justify a buy recommendation.

After this cut is increasing the risk premium (up to 5.15% from 4.75%) we apply in our valuation model to:

1. A bond market highly distorted  by massive monetary stimulus from the Bank of Japan. In fact, in recent months much of the cross – market operations come from the central bank itself.
2. The volatility of the yen . An environment of increased uncertainty in markets favors the role as a safe haven yen. The appreciation of the Japanese currency penalizes, in turn, the Nikkei by the weight of exporting companies in the index.
3. Protectionist measures  launched by the Trump administration are presented as a new head of uncertainty will slow to equities in coming quarters. Therefore, we have increased by 50 bp risk premium used for evaluating all selective.

To this joins also the  downward revision in corporate profits  (GAPs onwards) estimated by consensus by 2018. While it is true that the adjustment to December estimates is very light (-0.2% to 1333 yen), on year drop amounts to -2.1%. It is the only index with an estimated GAPs for this year’s retreat. Also, we do not rule out that eventually the retreat will end up being higher. As mentioned in other quarters, historically made defrauding GAPs estimates sharply: -13% in 2015 and -25% in 2016.

In conclusion, we maintain neutral recommendation and set the S & P 500 as our first choice investment in equities this quarter.