Sumitomo Mitsui Financial : Quarterly Economic Outlook for FY2022-2023(Update)







NEWS RELEASE

September 8, 2022

SMBC Nikko Securities Inc.

Quarterly Economic Outlook for FY2022-2023(Update)

September 8, 2022(JST), “SMBC NIKKO Japan Economic Outlook for FY2022-2023”has been released, responding to the second preliminary of GDP (April-June2022 period)

Japan’s Consumers Wake From CV19 Slumber

  • Real GDP: FY22 +2.2%, FY23 +2.1%
  • Nominal GDP: FY22 +2.7%, FY23 +3.1%

Summary

  • GDP growth outlook
    We revise our outlook to reflect the second preliminary Apr-Jun 2022 GDP data. We forecast real GDP growth of +2.2% YoY in FY22 and +2.1% in FY23, raising our FY22 forecast by 0.2ppt vs previously (18 Aug). This reflects the upward revision to Apr-Jun capex.

This material is an English translation of Japanese announcement made on September 8, 2022. 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.

  • Economic outlook
    Japan’s real GDP growth for Apr-Jun was +3.5% QoQ annualized (Y544tn), above pre-CV19 levels. The economy has finally broken out of its CV19-induced slump over the past nine quarters, with key points ahead the outlook for CV19, purchasing power, and inflation.

  • Life with CV19:CV19 cases have risen six times in the past but households have gradually loosened purse strings. We think they are no longer dismayed by CV19 numbers and recognize the limited danger of the virus, including the low fatality rate. The recent Omicron BA.5 variant’s fatality rate is currently around 0.03%, around one-third that for influenza. The real danger level is less than influenza, so we think private consumption could return to pre-CV19 levels, and it actually topped them in Apr-Jun. Assuming CV19 continues to weaken, we expect household spending to continue to recover.
    Purchasing power:We think consumption is unlikely to weaken further as a result of inflation. Household real disposable income is currently around Y312tn, down around Y3tn due to recent inflation. However, this is still around Y15tn higher than consumption. Factoring in excess household savings (around Y49tn), it is around Y64tn higher than the value of consumption. Household purchasing power is well above consumption levels, so we don’t think income is a limiting factor.
    Inflation:In Japan it’s largely due to rising commodity prices caused by soaring energy and food prices, but in global commodity markets, crude oil and grain prices are now peaking out. We expect inflation to cool as the Fed ramps up QT in earnest while gasoline and wheat prices in Japan are being kept in check by the government’s price measures. We expect the CPI to slow rapidly from around the start of next year.
    Thus, we expect a solid recovery in the Japanese economy as CV19 weakens, purchasing power is sufficient to withstand inflation, and inflation subsides.

  • US inflation and rate hikes

    1. US rate hikes:US inflation is skewed to the services sector; it is home-grown inflation driven by rising wages. To curb services consumption, the Fed will probably keep hiking the federal funds
    2. rate to encourage a shift from spending to savings. With the resultant decline in consumption (accounts for about 70% of GDP), the US economy is almost certain to fall into a recession.

L-shapedrecovery:However, given that the Fed tightening is likely a measure to lift labor supply (cause of current US inflation), we would expect it to continue throughout and after the recession until labor supply recovers, resulting in an L-shaped rather than V-shaped recovery.

# # #

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Quarterly forecasts for Japanese economy

Actual》←Forecasts

2021

2022

2023

2024

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

Real GDP growth (QoQ)

-0.3

0.4

-0.4

1.0

0.1

0.9

0.5

0.7

0.6

0.5

0.4

0.5

0.4

(annual rate)

-1.3

1.5

-1.8

3.9

0.2

3.5

1.9

2.9

2.2

1.9

1.7

2.0

1.7

(Calender year base)

Domestic demand, contribution (QoQ)

-0.4

0.6

-0.6

0.9

0.5

0.8

0.5

0.7

0.5

0.5

0.5

0.5

0.5

Private consumption (QoQ)

-0.6

0.4

-0.9

2.4

0.3

1.2

0.5

0.8

0.5

0.3

0.4

0.5

0.4

Capex (QoQ)

0.7

1.6

-1.8

-1.3

-1.4

-1.9

0.0

0.2

0.2

0.2

0.2

0.2

0.2

Residential investment (QoQ)

0.9

1.0

-2.0

0.2

-0.1

2.0

1.0

1.4

1.0

1.2

0.9

0.9

0.9

Public investment (QoQ)

-0.2

-2.5

-3.3

-3.7

-3.2

1.0

0.5

0.8

0.3

0.3

0.3

0.3

0.3

Foreign demand, contribution (QoQ)

0.1

-0.2

0.2

0.0

-0.5

0.1

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Exports (QoQ)

2.3

3.0

0.0

0.6

0.9

0.9

1.0

0.7

0.6

0.6

0.6

0.6

0.6

Imports (QoQ)

1.8

4.4

-1.1

0.4

3.5

0.6

0.8

0.6

0.5

0.5

0.8

0.8

0.8

Nominal GDP growth (QoQ)

-0.6

-0.3

-0.4

0.4

0.4

0.6

1.1

1.2

0.9

0.9

0.6

0.3

0.4

Industrial production (YoY)

-1.8

18.4

6.6

1.1

-0.6

-3.6

0.2

1.5

1.7

4.6

4.1

3.5

4.1

Trade balance (Y tn, SAAR)

3.1

-0.4

-3.7

-5.2

-11.6

-21.6

-15.7

-14.6

-12.4

-11.3

-10.5

-11.3

-12.2

Unemployment rate (%)

2.9

2.9

2.8

2.7

2.7

2.6

2.6

2.6

2.5

2.5

2.4

2.4

2.3

Core CPI (YoY)

-0.5

-0.6

0.0

0.4

0.6

2.1

2.4

2.6

2.4

1.8

1.2

0.5

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

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

US real GDP growth (QoQ annualized)

6.3

6.7

2.3

6.9

-1.6

-0.6

-2.0

-1.0

2.0

1.5

1.5

1.5

1.5

US unemployment rate (%)

6.2

5.9

5.1

4.2

3.8

3.6

3.7

3.8

3.8

3.7

3.6

3.6

3.6

US core CPI (YoY)

1.4

3.7

4.1

5.0

6.3

6.0

5.5

5.0

4.7

4.5

4.2

4.1

4.1

Fed rate (Eop)

0.125

0.125

0.125

0.125

0.375

1.625

2.875

3.375

3.875

3.875

3.875

3.875

3.875

A》← →《F(Unit:%)

FY21 FY22 FY23

2.3

2.2

2.1

1.7

1.7

2.3

1.5

2.4

2.1

2.6

3.3

1.9

-1.6

-3.8

0.8

0.6

3.3

4.3

-7.5

-2.9

1.5

0.8

-0.2

-0.1

12.5

3.2

2.6

7.2

4.2

2.6

1.3

2.7

3.1

5.9 -0.1 4.0 -5.3-16.1-11.3

2.8

2.6

2.4

0.1

2.4

0.9

-0.1

-0.1

-0.1

0.0

0.0

0.0

5.7

1.1

0.6

5.4

3.7

3.7

3.6

5.7

4.4

0.125 3.375 3.875

Comparison with previous forecasts (as at 18 Aug 2022)

FY22 FY23

0.2 0.0

0.2 0.0

0.2 0.0

0.0 0.0

0.0 0.0

0.7 0.0

0.0 0.0

0.0 0.0

0.0 0.0 -0.2 0.0

0.3 0.0

0.1 0.0

0.1 0.2

0.1 0.1

0.0 0.0

0.0 0.0

  1. 0.0
  1. 0.0

0.0 0.0

0.0 0.0

0.0 0.00

Assumptions: Forex rate (annual mean): Y132/$ in FY22 and Y128/$ in FY23.

Crude oil price (WTI annual mean): $93/bbl in FY22 and $85/bbl in FY23.

Notes: US GDP on a calendar basis, US unemployment rate is the average for the period, FF rate is at end of year.

Sources: Cabinet Office, Ministry of Internal Affairs and Communications,

Ministry of Economy, Trade and Industry, and Bank of Japan, SMBC NIKKO estimates

Outlook for real GDP growth

(YoY % chg, contribution,

Our outlook

4

2.3%

2.2%

2

2.1%

0

-2

-4

-6

-4.6%

-8

2018

2019

2020

2021

2022

2023

(FY)

Private consumption

Private housing investment

Capex

Private inventory

Government expenditure

Imports

Exports

Real GDP

Sources: Cabinet Office, SMBC NIKKO estimates

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APPENDIX

This research was prepared by non-U.S. analysts employed by SMBC Nikko Securities Inc., an unregistered broker-dealer located in Japan that is not a member of FINRA or SIPC. “SMBC NIKKO” refers to SMBC Nikko Securities, Inc., its affiliate SMBC Nikko Securities America, Inc. (“SI”), a registered U.S. broker-dealer and member firm of FINRA and SIPC, and their other affiliates, as applicable by law. To the extent a non-U.S. analyst(s) was involved in the preparation of this research report, whether in whole or in part, he or she is not registered/qualified as a research analyst with FINRA. Any such non-U.S. analyst may not be an associated person of SI and therefore may not be subject to FINRA Rule 2241 and 2242 restrictions on communications with a subject company, public appearances and trading securities held in a research analyst account.

By acceptance of this report, each investor agrees that it will not distribute or provide this report to any other person. Any person in the US receiving this report, or any other US person, who would like to trade any of the securities discussed in this report should contact SI. SI accepts responsibility for the content of this report when distributed in the US or to US persons.

ANALYST’S CERTIFICATION

Each analyst shown on the first page of this research report prepared and issued by SMBC NIKKO is primarily responsible for the preparation and content of this research report. Each analyst certifies that the opinions contained herein accurately reflect the analyst’s individual views for the subject securities and issuers. Each analyst also certifies that no part of the analyst’s compensation was in the past, at present, or in the future, directly or indirectly related to the specific recommendations or views expressed in this research report.

DISTRIBUTION OF INVESTMENT RATINGS

The following table shows (1) the distribution of investment ratings for all SMBC NIKKO coverage universe stocks and (2) the proportions of stocks of each rating to which SMBC NIKKO has provided investment banking (IB) services within the past 12 months (updated as of 07 September, 2022)

1-Outperform

2-Neutral

3-Underperform

Others

(1) Companies under coverage

38%

57%

3%

1%

(2) Proportion of stocks of each rating in (1) with IB relationships

26%

29%

29%

33%

Note: For the purposes of mandatory regulatory disclosures, 1-Outperform corresponds to a “buy” rating, 2-Neutral to a “hold” rating, and 3-Underperform to a “sell” rating. However, SMBC NIKKO investment ratings are assigned relative to an analyst or analyst team’s sector coverage as defined below and are thus different from “buy”, “hold”, and “sell” ratings as defined by FINRA. “Others” refers to Not Rated, Rating Suspended, and Restricted stocks.

EXPLANATION OF TARGET PRICES AND STOCK RATINGS

Target prices assigned by research analysts reflect the estimated share price level the analyst forecasts the stock to reach within the next six to12 months. For valuation methodology and risks, please refer to the report or web disclosure: https://researchdirect.smbcnikko.co.jp/disclosure/disclosure.php

Each coverage stock is assigned an investment rating relative to the analyst or analyst team’s coverage sector universe which encompasses said stock. Investment ratings are defined as below; the effective rating period is six to 12 months.

1-Outperform:

An individual stock’s investment return, as forecast by the research analyst, is expected to exceed the median investment

return of all stocks within the coverage universe.

2-Neutral:

An individual stock’s investment return, as forecast by the research analyst, is expected to be in line with the median

investment return of all stocks within the coverage universe.

3-Underperform:

An individual stock’s investment return, as forecast by the research analyst, is expected to be below the median

investment return of all stocks within the coverage universe.

NR:

Not Rated

RS:

Rating Suspended

Sector ratings are defined as below; the effective rating period is six to 12 months. The market as it pertains to Japan is TOPIX.

Overweight:

The investment return of the sector coverage universe, as forecast by the research analyst, is expected to exceed the

market average.

Equal weight:

The investment return of the sector coverage universe, as forecast by the research analyst, is expected to be in line with

the market average.

Underweight:

The investment return of the sector coverage universe, as forecast by the research analyst, is expected to be below the

market average.

Individual stock/sector recommendations and share price forecasts contained in SMBC NIKKO’s technical analysis reports are based on a variety of technical analysis techniques that take historical share price performance, position analysis, and other technical factors into consideration, but are not based on a fundamental analysis of those stocks/sectors in question. Accordingly, stock/sector recommendations and share price forecasts based on the technical analysis of individual stocks/sectors that are also within the SMBC NIKKO fundamental equity research coverage universe do not necessarily correspond to, nor are intended to match, respectively, the fundamental investment/sector ratings and target prices determined by SMBC NIKKO’s fundamental equity research analysts responsible for covering those same stocks/sectors.

OTHER IMPORTANT US DISCLOSURES

Analyst compensation, including the compensation of the analyst(s) directly involved in the preparation of this report, is based upon (among other factors) the overall profitability of SMBC NIKKO, which includes the overall profitability of investment banking services.

SMBC NIKKO is not aware of any other material conflict of interest of the research analyst or SMBC NIKKO that the research analyst or an associated person of SMBC NIKKO with the ability to influence the content of this research report knows or has reason to know at the time of the publication or distribution of this report.

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.

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This research report has been produced by SMBC NIKKO for informational purposes only. It does not constitute solicitation of the sale or purchase of securities or other investments. SMBC NIKKO does not 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. In the US the report is intended for distribution solely to institutional investors.

Non-research departments of SMBC NIKKO 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 may make investment decisions on the basis of such commentary. In addition, SMBC NIKKO and its employees 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.

OTHER IMPORTANT NON-US DISCLOSURES

This research report has been produced by SMBC NIKKO for informational purposes only. It does not constitute solicitation of the sale or purchase of securities or other investments. SMBC NIKKO does not 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 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 may make investment decisions on the basis of such commentary. In addition, SMBC NIKKO, as well as its employees, 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. SMBC NIKKO is not a party to an agreement with the issuer(s) relating to production of a recommendation.

This research report is distributed by SMBC NIKKO. The information contained herein is for client use only. SMBC Nikko Securities Inc. 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 1.265% of the contract settlement amount (Note: The minimum commission is 5,500 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 Securities Inc. 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 Securities Inc. 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 Securities Inc. 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, the Type II Financial Instruments Firms Association, and the Japan Security Token Offering Association.

Regional Specific Disclosures

Reports sent to clients outside Japan are intended only for institutional investors. The definition of ‘institutional investor’ varies from country to country. Neither this research report nor the information contained in it is intended to be an offer, an inducement or an attempt to induce any person to enter into any agreement to acquire, dispose of, subscribe for or underwrite securities.

Canada Under no circumstances should this material be construed as an offer or sale of securities. This material is a general discussion of the merits and risks of a security or securities only, and is not in any way meant to be tailored to the needs and circumstances of any recipient. This material is not a recommendation to purchase a specific security, service, or product and should not be construed as such.

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Sumitomo Mitsui Financial Group Inc. published this content on 09 September 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 09 September 2022 09:19:03 UTC.

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All news about SUMITOMO MITSUI FINANCIAL GROUP, INC.

Analyst Recommendations on SUMITOMO MITSUI FINANCIAL GROUP, INC.

Sales 2023 3 172 B
22 038 M
22 038 M
Net income 2023 750 B
5 211 M
5 211 M
Net Debt 2023

P/E ratio 2023 7,75x
Yield 2023 5,08%
Capitalization 5 877 B
40 837 M
40 837 M
Capi. / Sales 2023 1,85x
Capi. / Sales 2024 1,80x
Nbr of Employees 101 000
Free-Float 92,6%

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Technical analysis trends SUMITOMO MITSUI FINANCIAL GROUP, INC.

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Income Statement Evolution

Sell

Buy

Mean consensus BUY
Number of Analysts 11
Last Close Price 4 286,00 JPY
Average target price 5 165,83 JPY
Spread / Average Target 20,5%




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