Japan homebuilders with U.S. exposure may see boost from election

Shares of Japanese housing-related companies with exposure to the U.S. may benefit from the presidential election and interest rate cuts, keeping them ahead of the broader equity market in Tokyo.  

Home builders that get more than a 10th of their revenue from the U.S. — Sumitomo Forestry Co., Nichiha Corp. and Sekisui House Ltd. — have surged an average of 29% this year, beating an 8.9% advance in the Topix. Japan's construction shares as a whole are up 16%, recovering almost all of their losses since the stock market had its worst rout in decades in early August.

Housing stocks are following their US peers higher as both presidential candidates woo voters with plans to support homeownership and as the Federal Reserve prepares to lower rates. The sector was already riding on a recovery in domestic consumption that convinced the Japanese government to revise up its assessment for housing construction for the first time in over two years.

"Regardless of whether the Democrats or Republicans win, the outcome is unlikely to be negative," said Naoki Fujiwara, a senior fund manager at Shinkin Asset Management Co. in Tokyo. "There's plenty of room for stocks to rise as the Fed's rate cuts have a positive effect."

Shares of Sumitomo Forestry, which gets almost half of its revenue from the U.S., is already up 48% this year after the maker of wood-related construction materials boosted its operating income guidance for the full year last month, beating the average analyst estimate. 

Sekisui House, which receives 15% of its sales from America, is another stock attracting attention. The maker of steel-frame and wooden homes climbed to an intraday record last week after Nomura Securities Co. raised its price target and forecasts for operating profit on the company's overseas performance. 

But concerns over an economic slowdown in the U.S. have cast a shadow on stocks there and in Japan recently. The benchmark Topix index slid 2.9% in August and construction subindex dropped 2.3%, the worst monthly performance since December 2022. Meanwhile, the dollar's 11% drop against the yen this quarter has weighed on exporters.

Despite this, there's optimism the next US president will support the housing market. Vice President Kamala Harris has proposed down-payment assistance for some first-time homebuyers and Republican presidential candidate Donald Trump has identified homeownership as a key issue. 

Since the start of this quarter, homebuilders are among top-performing groups out of 158 in the S&P 1500 Composite index.