A divergence in opinions is emerging among fund managers and strategists regarding the prospects of Japanese bank stocks, fueled by indications that the Bank of Japan (BOJ) is moving closer to ending its ultra-easy monetary policy. The anticipated tightening of monetary policy has prompted investors to factor in potential benefits, diminishing the attractiveness of Japanese bank stocks. Instead, attention is shifting towards non-bank financials, real estate, and railways, according to Man GLG, a unit of the hedge fund Man Group Plc.
Emily Badger, a portfolio manager for Japanese equities at the UK-based Man GLG, believes that efforts by Prime Minister Fumio Kishida’s government to bolster asset management will benefit financial firms beyond traditional banks. Badger anticipates gains in areas such as real estate and railways, both holding substantial property assets.
This perspective aligns with Nomura Securities Co., in contrast to the bullish outlook on Japanese lenders presented by strategists at major Wall Street banks such as Goldman Sachs Group Inc. and Morgan Stanley. The latter banks anticipate a resumption of the Topix Banks Index’s upward trajectory after a recent dip reduced its year-to-date increase to less than 30%.
While JPMorgan Chase & Co. and UBS Group AG consider Japanese financial stocks attractive, citing factors like the exit from deflation and expected monetary normalization, Nomura’s chief strategist sees bank stocks as having peaked. The anticipation of a global economic slowdown and declines in bond yields further weighs on the outlook for lenders.
Despite foreign investors returning to the Japanese market this year, focusing on familiar and liquid stocks, Badger observes that mid-cap value shares are becoming increasingly attractive relative to large-caps. The MAN GLG Japan CoreAlpha Equity fund, co-managed by Badger, has outperformed, returning nearly 100% over the past three years.
Top holdings of the fund include Mitsubishi Estate Co., Mitsubishi UFJ Financial Group Inc., and Panasonic Holdings Corp. Badger emphasizes the attractiveness of mid-cap auto stocks, citing high profits, robust balance sheets, low valuations, and ongoing restructuring. Additionally, she foresees a shift towards rising rents in Japan as inflation picks up and underscores the continued significance of the corporate governance movement as a key driver for Japanese stocks.
