UBS Sees Nikkei at 12,000; Credit Suisse Flips to Buy

By Patrick Rial

Oct. 14 (Bloomberg) -- Japan's Nikkei 225 Stock Average is likely to rise to 12,000 by April, said UBS AG, while Credit Suisse Group switched its stance, advising investors to buy shares after governments pledged to support the financial system.

The risk premium for equities, the amount of return that stock investors demand over the yield on government bonds, has soared in recent weeks, sending benchmarks tumbling, as the collapse of Lehman Brothers Holdings Inc. led to a freeze in credit markets, said Shoji Hirakawa, chief equity strategist in Tokyo at UBS.

As that premium returns to a normal level, the Nikkei is likely to rally 50 percent in spite of growing recession concerns, Hirakawa said.

Credit Suisse's chief strategist Shinichi Ichikawa changed his earlier recommendation from waiting for the bottom to accumulating Japanese shares now.

``Even with forecasts for declining profits, 12,000 is a sustainable level for the Nikkei because the risk premium and real economy are completely separate things,'' said Hirakawa. ``With the policy measures announced over the weekend, all of the elements for a recovery are in place.''

The Nikkei 225 rallied 14 percent to 9,401.17 as of 1:16 p.m. in Tokyo, set for its largest advance on record. The gauge dropped to 8,276.43 on Oct. 10, a level not seen since May 2003.

Group of Seven finance chiefs, said on Oct. 11 they will take ``all necessary steps to unfreeze credit and money markets'' to restore investor confidence after a plunge in stock prices last week wiped out $7 trillion in value.

`Time is Right'


U.S. and European governments are unveiling plans to boost bank capital by buying shares in financial companies. The London interbank offered rate, or Libor, for three-month dollar loans fell the most in seven months yesterday, indicating renewed willingness of banks to lend.

``We now believe the time is right to accumulate on the Tokyo market,'' Tokyo-based Ichikawa wrote in a report today. ``We regard the G-7 meeting as a new step toward meeting the conditions for a bottoming of Japanese share prices.''

As recently as last week, Ichikawa was forecasting declines in the nation's market and cautioned against buying into the downtrend. He recommended investors hold ``defensive'' shares in their portfolios that are relatively insulated from global turmoil.

He said today he will review his recommendations on real estate, banks and brokerages, which were sold off during the height of credit turmoil. Measures included on the Topix index of all three groups rose more than 14 percent today.

Hirakawa cautioned that the major risk for a sustained rebound in share prices is whether the increase in government debt causes long-term bond yields to surge, reducing the attractiveness of equities. Ichikawa predicted markets will remain volatile and recommended investors should continue to accumulate shares even if benchmarks start to decline.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net.