Strong profits in overseas demand industries, Japanese stocks start the third quarter report strongly
Driven by overseas demand, the Japanese stock market's performance in the third quarter significantly outperformed that of the second quarter, with revenue increasing by 2.8% year-on-year, operating profit rising by 11.0%, and net profit soaring by 28.7%. The electronics and precision instruments sectors contributed the most, while the automotive and food sectors showed weak performance. More than 50% of companies exceeded expectations, with export-oriented companies performing particularly well. Stock buyback plans have also seen a revival, with Tokyo Stock Exchange index constituents announcing buybacks totaling 0.7 trillion yen
Driven by overseas demand, Japanese stocks in Q3 have reported performance significantly better than Q2, with the core driving force of profit momentum coming from the overseas demand sector, while the domestic demand industry remains relatively weak.
According to a report from JP Morgan on November 4, about 30% of companies in the Tokyo Stock Exchange Prime market have disclosed their Q3 results, showing significant improvement over Q2: revenue from July to September increased by 2.8% year-on-year, operating profit rose by 11.0%, and net profit surged by 28.7%.
The core driving force of this profit momentum comes from the overseas demand sector, while the domestic demand industry remains relatively weak.
In terms of specific sectors, the electronics and precision instruments sector (including Hitachi, Fujitsu, NEC, and Advantest) has become the main contributor to net profit growth, and the power and gas sector also performed strongly. In contrast, the automotive sector saw a year-on-year decline of 0.6 percentage points in net profit, while the food sector declined by 0.1 percentage points due to weak consumption.
More than 50% of companies exceeded Bloomberg's consensus expectations, but the outperformance level of export-oriented manufacturing (15.4%) far exceeded that of domestic demand-oriented companies (7.2%).
The report pointed out that export-oriented companies performed better, partly because market expectations for them were relatively conservative due to tariff impacts and uncertainties in the U.S. economy.
Although 52 companies have raised their full-year earnings guidance, automotive manufacturers have yet to release their financial reports, and the impact of tariffs remains unclear.
It is noteworthy that Japanese companies maintain their assumption for the USD/JPY exchange rate at 144 yen for the fiscal year 2025, lower than the current market level of 154 yen, providing a profit buffer for overseas operations.
There are signs of recovery in stock buybacks. Since October, companies in the Tokyo Stock Exchange index have announced a buyback plan of 0.7 trillion yen, consistent with the same period in 2024. Advantest announced a buyback of 150 billion yen (accounting for 2% of circulating shares), and Recruit Holdings repurchased 250 billion yen (accounting for 3%).
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