Value overtakes growth in Japan's stock market on rising bets of BOJ policy shift

Yahoo Finance · 19 Sep 2023 3.2K Views

TOKYO, Sept 19 (Reuters) - An index of Japanese value shares has surged to record highs this week as investors bet on a shift in the Bank of Japan's ultra-loose monetary policy and load up on companies with higher dividends to shield them from rising interest rates.

The Topix index of value shares comprises 1,552 stocks such as steel makers, banks and automakers that offer value to investors because they pay dividends or are trading at a discount to their market worth.

The index hit 2,816.86 points on Tuesday, a record high. With gains of nearly 36% in six months, it has far outstripped the broader market and the parallel growth index which comprises companies with potential for high earnings.

"Investors have scooped up value stocks as Japan's interest rates are set to rise," said Takamasa Ikeda, senior portfolio manager at GCI Asset Management.

"They like value shares as they pay higher dividend. When investors see Japan's corporate growth is capped, they tend to pay attention to shares with higher dividend payouts."

The BOJ is set to announce its policy outlook at the end of a two-day meeting on Friday, with markets widely expecting the bank to maintain its ultra-easy settings.

However, recent BOJ rhetoric and inflation readings which have exceeded the central bank's target of 2% for more than a year have market players bracing for a change in its easy policy sooner rather than later.

Higher yields are a bonus for value stocks such as banks, but they could hurt growth stocks whose appeal lies in future cash flows.

The value versus growth debate has shifted gradually as expectations for policy tightening have grown.

Japan's Nikkei index has been on a tear since March as foreign investors bought heavyweight growth shares such as chipmakers amid expectations for robust demand for developing artificial intelligence.

It peaked at a 33-year high in mid-June.

"That theme of buying heavyweight growth shares is gone and investors are searching for another theme," said GCI Asset Management's Ikeda.

The Topix growth index, with 1,240 stocks, peaked in June and is up 18% since March.

The focus on value and dividends since June has seen the TSE banking index rise 41% so far this year, beating the Topix's 28% rise. The auto and auto parts sector is up 57% so far this year.

A rare call from the Tokyo Stock Exchange (TSE) to improve capital efficiency supported the rally in value shares.

It comes alongside a government move to double the size of a tax-free Nippon Individual Savings Account (NISA) investment scheme from next year in a bid to encourage retail investors to shift savings from cash to capital markets.

"Investor are scooping up shares with higher dividend payouts ahead of the start of the new NISA scheme," said Shoichi Arisawa, general manager of the investment research department at IwaiCosmo Securities.

($1 = 147.8000 yen)

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