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MarketScreener Homepage  >  Equities  >  Tokyo  >  Sumitomo Mitsui Financial Group, Inc.    8316   JP3890350006

SUMITOMO MITSUI FINANCIAL GROUP, INC.

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Sumitomo Mitsui Financial : Quarterly Economy Outlook for FY 2019-2020

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08/14/2019 | 05:32am EDT

NEWS RELEASE

August 14, 2019

SMBC Nikko Securities Inc.

Quarterly Economy Outlook for FY 2019-2020

August 14, 2019 (JST), "SMBC NIKKO Japan Economic Outlook for FY 2019-2020"has been

released, responding to the first preliminary of GDP (April-June 2019 period).

See Domestic Recovery Despite Trade War, Tax Hike

  • Real GDP: +0.9% in FY19 and +0.9% in FY20
  • Nominal GDP: +0.9% in FY19 and +1.3% in FY20

Summary

  • GDP growth outlook
    We revise our outlook to reflect the first preliminary Apr-Jun 2019 GDP data. We forecast real GDP growth of 0.9% YoY in FY19 and 0.9% in FY20, an upward revision of 0.1ppt versus our previous outlook for FY19 (10 June), largely to reflect strong capex and housing investment of late.
  • Current state of the economy
    Apr-Jun 2019 real GDP growth (annualized basis) was up 1.8% QoQ, for a third straight quarter of growth. Drivers of domestic demand like private consumption, capex, and public sector outlays are strong, and the downtrend in exports-the largest drag on the domestic economy-has faded, largely owing to a pause in the semiconductor-related correction. The global semiconductor correction reflected declining demand for IT end products (like cell phones and servers), and the upturn in end product demand has now fed through to components like semiconductors. In the past three months global semiconductor sales have rebounded and semiconductor prices have bottomed as well. This suggests the domestic production correction led by the high-tech field should fade from here.
    That said, the external climate still includes many threats such as escalating US-China trade tension and the strong yen. Also, Japan has a consumption tax hike set for 1 Oct. In this light, Japan's economy will likely continue to face domestic troubles and external threats.

This material is an English translation of Japanese announcement made on August 14, 2019. Although the company intended to faithfully translate the Japanese document into English, the accuracy and correctness of this translation are not guaranteed and thus you are encouraged to refer to the original Japanese document.

  • Risk
    Rather than continued escalation of US-China trade tensions, we expect the parties will work toward an agreement. We think the US's unveiling of a fourth round of tariffs on China on 1 Aug was prompted by a perceived failure of China to live up to its agreement to purchase US farm imports. While this might represent a misreading of the data by the US, it suggests the Trump administration's decisions are being influenced by the upcoming 2020 presidential race. Still, the fourth round of tariffs would cover about 40% of consumer goods, and so would likely have a negative impact on the Christmas shopping season if enacted. This suggests further hikes to tariffs ahead of year-end will be difficult.
    Meanwhile, China lacks effective ways to retaliate against the US. Indeed, any intensification of the trade war will only accelerate the ongoing trend of firms moving operations outside of China, accelerating the hollowing out of industry there. If Trump is reelected this situation will only get more serious. China's best option would be to come to an agreement with the US and get it to lower tariffs, thus avoiding a hollowing out of its industry.
    Both the US and China have room to compromise. It makes sense for the US to get China to resume farm product purchases and to avoid widening the scope of tariffed products. This would be positive both for the US Christmas shopping season and for Trump's reelection prospects. China, meanwhile, had been purchasing US farm products from the start of the year, so resuming such purchases would be easy. It could moreover lay the groundwork for a quid pro quo by the US. We therefore expect US-China trade talks to move toward an agreement from here, rather than intensified conflict.
    As for Japan's consumption tax hike, this time around we expect no major front loading of demand nor any significant drop off after the hike. Such trends occur mainly for durable goods, but in the case of autos, nearly 90% of the additional costs from the consumption tax hike will be offset by automobile tax cuts, so we expect no significant demand rush. For housing investment, meanwhile, policies such as longer mortgage tax reduction periods and expanded housing subsidies will make it more beneficial to purchase housing after the tax hike, so we expect no significant demand rush here either.
  • Outlook for the economy
    We expect the upturn in the semiconductor cycle will drive a cyclical recovery for Japan's economy. As for the trade war, both the US and China have room to compromise, so we expect they will work towards a breakthrough. We expect the consumption tax hike this Oct will bring no major demand rush or drop off. Even if the economy does turn down, the government could unveil further stimulus measures or additional BOJ stimulus at the extraordinary Diet session this autumn. We expect Japan's economy will not fall into recession but rather will enjoy a sustained mild recovery with nearly 1% growth.
    • # #

2

Quarterly forecasts for Japanese economy

2018

2019

2020

2021

Comparison w ith

FY18

FY19

FY20

previous forecasts

(as at 10 Jun 2018)

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

FY19

FY20

Real GDP growth (QoQ)

-0.1

0.4

-0.5

0.4

0.7

0.4

-0.6

0.5

0.0

0.3

0.5

0.0

0.6

(annual rate)

-0.3

1.6

-1.9

1.6

2.8

1.8

-2.3

1.8

0.1

1.1

2.0

0.0

2.2

0.7

0.9

0.9

0.1

0.0

Domestic demand, contribution (QoQ)

-0.2

0.4

-0.3

0.8

0.3

0.7

-1.1

1.0

0.1

0.3

0.4

-0.1

0.5

0.7

0.9

0.9

0.1

0.0

Private consumption (QoQ)

-0.1

0.4

-0.1

0.4

0.1

0.6

-1.6

1.5

-0.3

0.1

0.3

-0.5

0.5

0.5

0.5

0.7

-0.4

0.3

Capex (QoQ)

-2.5

-1.9

0.8

1.3

0.6

0.2

0.0

-1.5

-0.5

-0.5

0.5

0.5

0.5

-4.4

0.6

-0.9

1.4

0.2

Residential investment (QoQ)

1.0

2.5

-2.6

2.7

0.4

1.5

-0.5

0.0

0.5

0.5

0.8

0.5

0.5

3.5

2.3

1.7

0.6

-0.1

Public investment (QoQ)

-1.0

-1.2

-1.8

-1.3

1.4

1.0

0.8

0.5

0.0

-0.2

-0.5

-0.5

-0.5

-4.0

2.1

-0.1

-1.0

-0.6

Foreign demand, contribution (QoQ)

0.1

0.0

-0.2

-0.4

0.4

-0.3

0.5

-0.5

0.0

0.0

0.1

0.1

0.1

0.0

0.0

0.0

0.0

0.0

Exports (QoQ)

1.0

0.8

-2.1

1.2

-2.0

-0.1

0.0

0.0

0.3

0.5

0.8

0.8

0.8

1.5

-1.2

2.4

0.6

-0.4

Imports (QoQ)

0.6

0.8

-1.2

3.6

-4.3

1.6

-3.0

3.0

0.5

0.5

0.5

0.5

0.5

2.1

-1.0

1.9

0.3

0.2

Nominal GDP growth (QoQ)

-0.1

0.2

-0.4

0.4

1.0

0.4

-1.1

0.9

-0.3

0.6

0.7

0.3

0.5

0.5

0.9

1.3

0.2

-0.2

Industrial production (QoQ)

-0.9

0.8

-0.7

1.3

-2.5

0.6

0.3

2.5

-2.0

0.0

2.0

1.0

1.0

0.2

0.1

2.1

-2.0

0.0

Trade balance (Y tn, SAAR)

4.3

3.4

0.4

-2.3

2.8

0.6

3.6

-3.3

-2.5

-2.5

-2.1

-1.3

-0.4

1.1

-0.4

-1.6

-1.4

-2.9

Unemployment rate (%)

2.5

2.4

2.4

2.4

2.4

2.4

2.4

2.4

2.4

2.3

2.3

2.3

2.3

2.4

2.4

2.3

0.0

0.0

Core CPI (YoY)

0.9

0.8

0.9

0.9

0.8

0.8

0.5

1.5

1.7

1.7

1.8

0.7

0.7

0.8

1.1

1.2

0.6

0.3

(Ex effects of consumption tax hike)

0.9

0.8

0.9

0.9

0.8

0.8

0.5

0.5

0.7

0.7

0.8

0.7

0.7

0.8

0.6

0.7

0.6

0.3

IOER (Eop)

-0.1

-0.1

-0.1

-0.1

-0.1

-0.1

-0.1

-0.1

-0.1

-0.1

-0.1

-0.1

-0.1

-0.1

-0.1

-0.1

0.0

0.0

YCC 10y JGB yields target (Eop)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

US real GDP growth (QoQ annualized)

2.5

3.5

2.9

1.1

3.1

2.1

2.3

2.2

2.1

2.1

2.1

2.1

2.1

2.7

2.2

2.1

-0.2

-0.1

US unemployment rate (%)

4.1

3.9

3.8

3.8

3.9

3.6

3.6

3.6

3.6

3.5

3.5

3.4

3.4

3.9

3.6

3.4

0.0

0.0

US core CPI (YoY)

1.9

2.2

2.2

2.2

2.1

2.1

2.1

2.2

2.2

2.3

2.3

2.3

2.3

2.2

2.2

2.3

0.0

0.0

Fed rate (Eop)

1.625

1.875

2.125

2.375

2.375

2.375

1.875

1.625

1.625

1.625

1.625

1.875

1.875

2.375

1.625

1.875

-0.30

-0.20

Assumptions: Forex rate (annual mean): JPY108.9/USD in FY19 and JPY113.3/USD in FY20; Crude oil price (WTI annual mean): USD57.9/bbl in FY19 and USD58.9/bbl in FY20.

Notes: 1) US GDP on a calendar basis, US unemployment rate is the average for the period, and FF rate at end of year. 2) Actual figures from Cabinet Office (CAO), MIC, METI, BOJ. Forecasts by SMBC NIKKO.

Sources: CAO; Ministry of Economy, Trade and Industry (METI); Ministry of Internal Affairs and Communications (MIC);Bank of Japan (BOJ); SMBC NIKKO forecasts

Outlook for Real GDP growth

(YoY % chg, contribution, ppt)

5

Our outlook

4

3

1.9

2

0.7

0.9

0.9

1

0

-1

-2

Consumption

tax hike

(8% -> 10%)

-3

2012

2013

2014

2015

2016

2017

2018

2019

2020

(FY)

Private consumption

Private residential investment

Capex

Private inventory

Government expenditure

Imports

Exports

Real GDP

Sources: CAO, SMBC NIKKO forecasts

3

APPENDIX

General Disclaimer

This research report has been produced by SMBC Nikko Securities Inc. ("SMBC NIKKO") for informational purposes only. It does not constitute solicitation of the sale or purchase of securities or other investments. The information contained herein is derived from sources that SMBC NIKKO believes to be reliable, but SMBC NIKKO does not guarantee the accuracy or completeness of said information. In some cases, such information may be incomplete or summarized. Prices, numbers, and similar data contained herein include past results, estimates, and forecasts, all of which may differ from actual data. These prices, numbers, and similar data may also change without prior notification. This research report does not guarantee future performance, and the information contained herein should, for whatever purpose, be used solely at the discretion and responsibility of the client. Neither SMBC NIKKO nor its affiliates accept any liability or responsibility for any results in connection with the use of such information. This research report does not take into account specific financial situations, needs, or investment objectives of any client, and it is not intended to provide tax, legal, or investment advice. Clients are responsible for making final investment decisions and should do so at their own discretion after careful examination of all documentation delivered prior to execution, explanatory documents pertaining to listed securities, etc., prospectuses, and other relevant documents.

Non-research departments of SMBC NIKKO and its affiliates may provide commentary to clients and their proprietary trading departments that are inconsistent with or incompatible with investments or opinions recommended in this research report. SMBC NIKKO and its affiliates may make investment decisions on the basis of such commentary. In addition, SMBC NIKKO and its affiliates, as well as employees of either, may trade in the securities mentioned in this research report, their derivatives, or other securities issued by the same issuing companies in this research report.

This research report is distributed by SMBC NIKKO and/or its affiliates. The information contained herein is for client use only. SMBC NIKKO holds the copyright on this research report. Any unauthorized use or transmission of any part of this research report for any reason, whether by digital, mechanical, or any other means, is prohibited. If you have any questions, please contact your sales representative. Additional information is available upon request.

Certain company names, product and/or service names that appear in this research report are trademarks or registered trademarks of SMBC NIKKO or other companies mentioned in the report.

Important notes concerning Article 37 of the Financial Instruments and Exchange Act (Advertising Regulations, etc.)

Commissions (below figures do not apply to certain customers, such as non-residents in Japan and professional investors under FIEA, for whom commissions are set on an individual basis)

When a trade is executed based on information contained in this research report, a predetermined brokerage commission may be charged. For example, when an order is placed at a branch to buy or sell a stock or other security on a securities exchange in Japan (with the exception of odd-lot remainders), a commission of up to a maximum of 1.242% of the contract settlement amount (Note: The minimum commission is 5,400 yen) is charged to the client for each product trade executed. Clients will only be charged for the purchase price of a bond, stock or other security in trades executed as part of a primary offering, secondary distribution, or with a counterparty (Note: In the case of bonds, the trade may require that the client pay accrued interest if separate from the purchase price). For trades involving products denominated in foreign currencies, an exchange of products denominated in yen and another currency, or an exchange of products denominated in different currencies, the applicable exchange rate will be determined by SMBC NIKKO. For fees mentioned above that are subject to consumption tax, the rates and amounts include the consumption tax portion.

Risks

Each product entails the risk of a partial loss of the amount of invested capital (the risk of a partial loss of principal) or a loss equal to or greater than the amount of invested capital (the risk of a loss equal to or exceeding principal) due to a variety of factors, which may include price variance and fluctuations in stock markets, interest rates, exchange rates, real estate markets, and commodity markets, and deterioration in the creditworthiness (including the financial and management condition) of issuers of securities. When executing margin or derivative transactions ("derivatives"), there is a risk the amount of derivatives transaction exposure could exceed the client's margin collateral or margin deposit ("margin collateral amount"), and there is also a risk of loss exceeding the client's margin collateral should prices of securities or values of indexes underlying such transactions fluctuate (the risk of a loss equal to or exceeding principal). When executing over-the-counter derivative transactions, there may be a spread between the ask and bid prices on financial instruments quoted by SMBC NIKKO. For asset-backed securities, interest, dividends, repayment of principal and other elements may be affected by changes in conditions in certain assets. Such changes may result in losses relating to early sale or redemption of such assets.

Aforementioned commissions and risks differ by financial instrument and clients should carefully examine all relevant documentation, including documentation delivered prior to execution, prospectuses, and other material provided. Clients may contact any SMBC NIKKO branch for questions regarding such documentation.

Company Name

SMBC Nikko Securities Inc. is a financial instruments dealer governed by the Financial Instruments and Exchange Act, registered with the Kanto Local Finance Bureau, Registration No. 2251.

Member Associations

SMBC Nikko Securities Inc. is a member of the Japan Securities Dealers Association, the Japan Investment Advisers Association, The Financial Futures Association of Japan and the Type II Financial Instruments Firms Association.

4

Disclaimer

Sumitomo Mitsui Financial Group Inc. published this content on 14 August 2019 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 14 August 2019 09:31:10 UTC

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EBIT 2020 608 B
Net income 2020 719 B
Debt 2020 -
Yield 2020 5,40%
P/E ratio 2020 6,67x
P/E ratio 2021 6,51x
Capi. / Sales2020 1,67x
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Capitalization 4 755 B
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Average target price 5 074,64  JPY
Last Close Price 3 470,00  JPY
Spread / Highest target 105%
Spread / Average Target 46,2%
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NameTitle
Takeshi Kunibe President, Chief Executive Officer & Director
Koichi Miyata Chairman
Susumu Kikuchi Deputy Manager-Finance
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