(Bloomberg) — A split is emerging between some fund managers and strategists about the fate of Japanese bank stocks amid signs the Bank of Japan is getting closer to ending ultra-easy money.
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Investors have priced in the benefits of future tightening of monetary policy, reducing the appeal of Japanese bank stocks and swinging attention to non-bank financials, real estate and railways, according to Man GLG, a unit of hedge fund Man Group Plc.
The efforts by Prime Minister Fumio Kishida’s government to strengthen asset management will help financial firms beside banks, said Emily Badger, a portfolio manager for Japanese equities at UK-based Man GLG. Inflation should bring gains for areas including real estate and railways, which both have significant property holdings, she said.
Badger’s view is in line with that of Nomura Securities Co., and contrasts with the bullish perspective on Japanese lenders from strategists at the likes of Goldman Sachs Group Inc. and Morgan Stanley. These major Wall Street banks expect the Topix Banks Index to resume its advance after a recent drop trimmed its year-to-date increase to less than 30%.
JPMorgan Chase & Co. also has an overweight recommendation for Japanese financial stocks, citing the exit from deflation, expected monetary normalization and wage rises. UBS Group AG sees banks as especially attractive after the recent correction in their share prices.
Meanwhile, Nomura’s chief strategist says that bank stocks have peaked out and sees a further global economic slowdown and declines of bond yields to weigh on the lenders. Another top fund manager is also trimming stakes in banks given the outperformance this year.
Foreign investors have returned to Japanese market this year, buying familiar and liquid stocks, which has driven the performance of large-cap value stocks, according to Badger.
That has left mid-cap value shares as attractive relative to large-caps and the team is “positioned for that opportunity,” she said.
Badger is the co-manager of the MAN GLG Japan CoreAlpha Equity fund, which has returned nearly 100% over the past three years, beating 98% of its peers, according to data compiled by Bloomberg.
The top holdings of the fund include Mitsubishi Estate Co., Mitsubishi UFJ Financial Group Inc. and Panasonic Holdings Corp., according to data compiled by Bloomberg.
Other views from Badger:
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Mid-cap auto stocks generally have been posting high profits, have strong balance sheets, low valuations and are undergoing restructuring
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Japan should start to see a shift toward rising rents as inflation begins picking up
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Corporate governance movement can remain a key driver for Japanese stocks
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