TOKYO -- Investors are unloading banking and insurance shares in Tokyo amid mounting expectations that the Bank of Japan will carry out another round of monetary easing.
"Even though investors showed interest in Japanese banking stocks, few were actually thinking of buying," Nomura Securities' Ken Takamiya said regarding his trip to Hong Kong and Singapore last week.
All of Japan's megabanks have a price-to-book ratio significantly below 1, as well as low price-earnings ratios. But investors are reluctant to buy the undervalued issues on concerns that their earnings will suffer if interest rates fall deeper into negative territory.
Of the 28 BOJ watchers recently surveyed by Nikkei Quick News, 22 predict that the central bank will implement additional easing measures at its policy meeting later this week. Fifteen expect a further cut in interest rates.
The Nikkei Stock Average has fallen 6% since Jan. 29, when the BOJ first decided to implement negative rates. In comparison, the banking subindex has plunged by 24% and the insurance subindex by 13%. Investors continue to unload these issues on the declining performance in lending operations and asset management.
The BOJ will lower its policy rate to minus 0.3%, while expanding purchases of exchange-traded funds to about 5 trillion yen to 6 trillion yen ($47.7 billion to $57.3 billion) a year, says Citigroup Global Markets Japan.
"Lower lending rates would weigh down group net profit at major banks by 2% this fiscal year," said Citigroup's Kentaro Kogi. Combined with greater competition over lending, these institutions could suffer a nearly 10% overall hit to net profit, he said.
How low the BOJ is willing to take policy rates remains unclear, and some investors are concerned that stocks of major banks will suffer more dramatic declines than their financial performance warrants, according to a fund manager at Mitsubishi UFJ Kokusai Asset Management.
The market is also focused on whether the European Banking Authority will reveal capital shortfalls at Italian banks when it publishes the results of a European Union-wide stress test on Friday.
"The results of the stress test could shake up the global market," said Mana Nakazora of BNP Paribas Securities (Japan).