Morgan Stanley has turned neutral on Japanese value stocks. I don’t think the recent outperformance will continue. On the other hand, Goldman Sachs Group Inc. is of the view that the strong trend of value stocks will continue with tailwinds from Japan and overseas.
The outperformance of the MSCI Japan Value Index against the MSCI Japan Growth Index resumed its rapid expansion in February. Morgan Stanley said the trend could end as expectations of tighter financial conditions are already priced in.
In a Feb. 28 report, strategists led by Gilbert Wong said the market had “hurriedly” priced in the Bank of Japan’s termination of its yield curve control (YCC) policy. He now recommends a “balanced approach to finding quality growth stocks and high total yield value stocks.”
Source: MSCI, Bloomberg
Goldman, meanwhile, sees rising interest rates in the U.S. and globally, improving economic data and domestic efforts to boost corporate valuations will still give value stocks an edge.
Strategists including Kazunori Takebe and Bruce Kirk said in a February 26 report, “We believe value stocks will continue to outperform in the near term.” No,” he added.
Japanese bank stocks have the largest weight in MSCI’s index of value stocks. Bank stocks have risen since the end of last year on the back of expectations that the Bank of Japan will end monetary easing, contributing to the strong performance of Japanese stocks this year. The MSCI Japan Stock Index is up 5.6% since the beginning of the year, and the MSCI All Country World Index is up 4%.
But according to Morgan Stanley, short positions in Japanese stocks increased in February. The focus is on consumer staples, real estate and financial stocks.
Original title:Morgan Stanley Diverges From Goldman on Japan Value Stock View(excerpt)
