The tailwinds giving Japanese cyclicals a competitive edge

Japan (Topix) is doing well this year in US dollar terms, up 12% compared to 11% for the S&P 500 and 13% for the MSCI World index.

Japanese companies (ex-financials) are guided for recurring profits to grow 5%, according to a Goldman Sachs study, after growing 3% last year. According to the same study, sales and profits are expected to return to a growth trajectory in the manufacturing sector thanks to a weaker yen and better external demand.  Initial company guidance has historically been quite conservative and we expect an upwards earnings revision cycle to unfold later in 2017. Disappointingly, especially given strong balance sheets and record net profits, share buybacks fell sharply over the last year. ...