Japanese stocks are expected to slip in early 2005 on a slowdown in the world's second-largest economy but should rebound later in the year in tandem with expected stronger growth, analysts said.
After seeing the market end 2004 on a positive note, investors are betting that the semiconductor industry will emerge from the current downturn to help drive exports and the economy by mid-2005.
They said other positive factors include an expected recovery in corporate capital spending and stronger consumer sentiment later in the year.
"Growth concerns in Japan are most likely to weigh heavily on the equity market in early 2005," said Societe Generale Asset Management senior economist Akio Yoshino.
"We think there is the possibility that the Nikkei index could slip to below the 10,000 mark around March, when the Japanese fiscal year ends."
Japanese shares posted a second consecutive, but modest, annual gain over the past 12 months. The benchmark Nikkei-225 index closed 2004 at 11,488.76, up 7.6 percent, after hitting a low of 10,299.43 and a high of 12,195.66.
The broader TOPIX index of all First Section shares ended the year at 1,149.63, up 10.15 percent, after a low of 1,017.84 and a high of 1,225.97.
Investors have had a lot to be wary about in the final months of 2004. There have been concerns over slowing demand for information technology products from overseas, the appreciation of the yen against the dollar and the soaring price of oil, steel and other commodities.
Going forward, analysts expect the current softer patch to pass, leaving the way clear for a resumption of growth.
"The continued strength in the corporate sector suggests that any forthcoming downturn will be mild and short-lived," said Taro Saito, an economist at NLI Research, an arm of Japan's largest life insurer Nippon Life Insurance. Hideo Mizutani, chief strategist at Sieg Securities, said the Nikkei index could rally towards 14,000 by November 2005.
"The Nikkei index may hit a bottom of around 10,500 around February, then rebound, pricing in a global economic recovery in the latter half of the year," Mizutani said.
Analysts said banks have made considerable progress toward halving bad loans by March 2005.
Singapore's stock market still offers rich pickings in selected sectors in 2005 amid projections that economic growth will moderate to 3.0-5.0 percent from 8.1 percent this year, analysts said.
The main Straits Times Index (STI) finished 2004 at 2,066.14 points, representing a 15 percent gain over the year. For 2005, the STI may top 2,500 points, they said.
"It will be an okay year, it won't be a breakneck rally," Timothy Wong, head of research at DBS Vickers brokerage, told AFP.
"We are looking at a situation where growth is slowing down and there are uncertainties over whether corporate earnings can be sustained," he said.
Economic growth in 2004 had rebounded off a low base in 2003 when an outbreak of the SARS-paralyzed business activity in the city-state. The coming year still held pitfalls and Prime Lee Hsien Loong warned Friday that a sharp slowdown in the US or a slump in global electronics demand would have knock-on effects for the country.
But analysts said some stocks are expected to do well in 2005, especially those that have strong fundamentals but have been neglected by investors in 2004. According to Wong, all three Singapore banks -- DBS Group, United Overseas Bank and Oversea-Chinese Banking Corp. -- offer good value in 2005 as these stocks have generally lagged the STI in 2004. Another brokerage house, UOB Kay Hian, had a similar upbeat assessment for the three banks in its Singapore Strategy 2005 report.