Despite the lackluster performance of Japanese stocks last year, investors have high hopes for the market in 2015, forecasting gains of 17 percent by year-end, according to a new survey by Nomura (Tokyo Stock Exchange: 8604.T-JP).

On average, investors forecast the benchmark Nikkei 225 (Nihon Kenzai Shinbun: .N225) will hit 19,900 by end-2015, up from 16,953 currently.

The index rose just 7 percent in 2014, lagging other major markets in the region such as China and India, which rallied around 53 and 30 percent, respectively.

The market has been off to a soft start this year, with the Nikkei 225 trading down 2.6 percent on Tuesday as concerns around Greece’s future in the euro zone and plunging oil prices weighed on investor sentiment.

The survey, which was conducted between 21 December and 3 January, polled 215 domestic and overseas institutional investors.

Reasons for optimism

There are a multitude of factors behind investors’ optimism around Japan stocks: the Bank of Japan (Tokyo Stock Exchange: 8301.T-JP)‘s accommodative stance, the national pension fund’s increased allocation to Japanese stocks and positive earnings momentum.

In an interview with CNBC on Tuesday, Russ Koesterich, global chief investment strategist of Blackrock (NYSE:BLK – News) said the improvement in Japanese corporate earnings is underappreciated.

“One of the things that’s happening in Japan which has gone unnoticed, is you’re seeing a very big increase in corporate earnings and a significant increase in ROE (return on equity),” Koesterich said.

Read More Nikkei tipped to top 20,000 in 2015

“As you seen ROE move higher, that raises the valuations you want to play for the stocks. At a time when Japan is one of the few arguably cheap market in the world, it makes those stocks fairly attractive,” he added.

Investors polled by Nomura expect recurring profit growth of 12-13 percent in FY2015, which begins on April 1.

Nomura believes there is scope for investors to upgrade their view on earnings given the yen’s recent depreciation and the impact of lower crude prices.

Investors everywhere agree

Comparing responses between domestic and overseas investors, there was little significant divergence between views on the outlook for share prices and earnings, the bank said.

However, there was some divergence in terms of sector preference.

“Domestic investors appear relatively bullish toward construction and basic materials while overseas investors seem relatively bullish toward banks and real estate,” the bank wrote in a note accompanying the survey.

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