By Stanley White and Tom Westbrook
TOKYO/SYDNEY, Nov 11 (Reuters) - Japan's traditionally
overlooked stock market is winning new fans as global investors
use the promise of a coronavirus vaccine and a new U.S.
administration to hunt for more fairly valued, growth-oriented
markets.
The Nikkei stock average .N225 , historically an
underperformer, has jumped to its highest in almost 3 decades
and has become one of the developed world's top performers in
the week since Democrat Joe Biden won the Nov. 3 U.S. election.
Investors are betting that a less fractious global trade
policy under Biden and a COVID-19 vaccine will lead to a
stronger economic rebound and higher bond yields.
As a result, many investors are now rotating out of "growth"
stocks that comprise defensive, fast-growing sectors such as
technology into those more attuned to fundamental economic
strength.
That puts Japan, with its staple of consumer and industrial
blue-chips, firmly in their cross-hairs.
"We feel that Japan is becoming very interesting again,"
said Patrick Ghali, managing partner of hedge fund advisory firm
Sussex Partners, which is recommending increased allocation.
"It feels like it's the last fundamental place left, if you
look at valuations."
Even before the pandemic, some foreign fund managers were
turning optimistic on Japan, which is often avoided because of
corporate cash-hoarding and anaemic growth.
Those cash piles now look more attractive, as strong balance
sheets spell steady dividends and more acquisitions.
In August, after years scouring the globe for a big
purchase, legendary investor Warren Buffet splashed $6 billion
on 5% stakes in each of Japan's old-world trading conglomerates.
"For Japan, you get a developed market, you get the best
dividend growth of any developed market and you've also got a
market with a big chunk of earnings coming from outside of
Japan," said Jim McCafferty, joint head of Asia-Pacific equity
research at Nomura Securities in Hong Kong.
Shares in Japan's two biggest car manufacturers, Toyota
Motor 7203.T and Honda Motor 7267.T are at multi-month highs
after the firms doubled operating profit forecasts, due to a
recovery in demand from China, which highlights an economic
decoupling from the West that Nomura's McCafferty says makes
Japan appealing. YEN FOR THE NIKKEI
The Nikkei hit a high of 25,401.30 this week and is up 55%
since its trough in March, getting a big lift after positive
results from Pfizer Inc's PFE.N coronavirus vaccine trial.
Norihiro Fujito, chief investment strategist at Mitsubishi
UFJ Morgan Stanley Securities in Tokyo, sees it at 26,000 early
next year. Among the more bullish forecasts, Tokyo-based Monex
Securities expects an 8.5% rise to 27,500 by March.
The surge in Japanese stocks this year has stumped many
investors because it coincided with the yen's rise JPY= to an
eight-month high versus the dollar, showing the market was
increasingly less reliant merely on exports.
Japan's government has been pushing companies to improve
corporate governance, and the decades-long effort is starting to
yield results as boards agree to give investors higher returns.
Dividend yields in Japan are around 2.8%, higher than 2.2%
in the United States and on par with the 3.0% dividend yield for
many emerging markets, according to Schroders.
"It should be noted that in previous global recessions, the
profit recovery for Japanese corporates has always been a 'V'
and we wouldn't doubt this time will be different," analysts at
securities firm Jefferies said in a note last week.
Still, with so much hinging on the recovery from the
pandemic, forecasts for the Nikkei are being revised up
cautiously and gradually. Any setback in the development of a
coronavirus vaccine will knock equities lower, Fujito warns.
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Japanese stocks - historic underperformance https://tmsnrt.rs/2IoBgli
Yen and Nikkei https://tmsnrt.rs/38vwH3b
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