* Japan stocks most polarised since dot-com bubble in
1999-2000
* Stocks cheap on average, but few opportunities -analysts
* Investors flock to domestic stocks seen as immune to trade
war
* Automakers, banks out of favour
By Hideyuki Sano
TOKYO, July 12 (Reuters) - The gap in valuations of Japanese
shares is at its widest since the dot-com crisis two decades ago
and will likely stay that way until global trade tensions ease,
analysts say.
The Nikkei share average .N225 has been stuck in a narrow
trading range for months but, behind the lull in activity, a
major polarisation is taking place, analysts say.
"On average, Japanese share valuations are fairly cheap, but
when you are stock-picking, many of the shares you would like
are already quite expensive," said Hiroyuki Ueno, senior
strategist at Sumitomo Mitsui Trust Asset Management.
"On the other hand, you have cheap shares but few investors
will buy because they keep getting cheaper," he added.
A handful of stocks viewed as immune to the U.S.-China trade
war and other trade disputes are very expensive.
As their share prices have soared, so has the price
book-value ratio (PBR), a key metric used by investors. A higher
ratio indicates the stock is potentially overvalued.
These stocks include cosmetics firm Shiseido 4911.T with a
PBR of 7.3, and drugmaker Chugai Pharmaceuticals 4519.T at
5.2. Recruit Holdings 6098.T , which matches companies with
potential employees, is among the services firms doing well in a
sluggish economy. It has a PBR of 6.1.
Meanwhile, big banks and automakers, the traditional face of
corporate Japan, have seen their PBRs fall, in some cases well
below 1.0. That indicates the market believes the stock is not
worth the total net assets of the company.
Honda Motor Co. 7267.T and Nissan Motor Co. 7201.T have
seen their ratios fall to about 0.6, while Toyota Motor Corp.
7203.T is trading at 1.0, near its record low.
The autos sector .ITEQP.T is trading at a PBR of 0.8 as
investors worry about the impact of trade wars and game-changing
technologies such as electric cars and automated driving.
The ratios for banks are even lower due to negative interest
rates and fintech firms challenging traditional banking.
The top three banking groups -- Mitsubishi UFJ 8028.T ,
Sumitomo Mitsui 8316.T and Mizuho 8411.T -- are buried
between 0.4 and 0.5, with banks as a whole .IBNKS.T trading at
a record low PBR of about 0.4.
While stock markets always have winners and losers, the gap
between them has reached historic levels, said Masahiro Suzuki,
senior quants analyst at Daiwa Securities.
The coefficient of variation, a measure of the relative
dispersion of PBRs, shows the gap among listed firms on the
Tokyo Stock Exchange's main board is at its widest point in
almost two decades, he said.
The PBR for Tokyo's main Topix index .TOPX is about 1.2,
above a record low of 0.9 in 2012 but still relatively low
compared to international peers.
With few attractive investment opportunities, investors have
stayed away from the Tokyo market this year.
Foreign and domestic investors have been net sellers of
stocks so far this year, according to stock exchange data.
The few buyers are companies buying back their shares and
the Bank of Japan, which plans to buy about 6 trillion yen of
shares a year as part of a stimulus programme. Outperforming
stocks are fuelled by the BOJ's massive purchases of ETFs which
has reduced the share floats of popular companies, traders say.
The polarised conditions are expected to linger as long as
the U.S.-China trade war is unresolved.
"The pre-requisite for Japanese stocks to rise as a whole is
to have the U.S. and China getting along with each other," said
Pictet strategist Takatoshi Itoshima.
Daiwa's Suzuki said he expects U.S.-China trade relations to
improve later this year, which would lead to a narrowing of the
value gap as bargain hunters buy cheap "value" shares.
The polarisation in stocks also reflects structural changes,
such as digitisation and the emergence of new business models,
in global industries, said Masayuki Kubota, chief strategist at
Rakuten Securities.
"When the economy is going through structural changes, the
stock market tends to get polarised," he said.
"In 2000, people thought the internet will change
everything. That was a bit premature, but now it is becoming a
reality," he added.
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Polarised market https://tmsnrt.rs/32m6Ntm
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