TOKYO -- Japanese institutional investors have lowered the weighting of domestic shares in their portfolio amid concern over the stronger yen's impact on corporate earnings.
A QUICK index of investor sentiment based on weighting of Japanese shares declined for a second straight month in April to 33.96, the lowest since April 2011, soon after the March 2011 earthquake. A reading above 50 in the monthly survey targeting institutional investors and securities brokerages means bullish sentiment, while a figure below that mark signals a bearish outlook.
The April index fell 13.01 points on the month, with 21% of valid responses indicating that Japanese shares are underweight in their portfolio. That proportion topped 20% for the first time since November 2012, when the Abenomics rally began.
With many export-oriented Japanese companies projecting profit declines for the current year through March 2017 due to the stronger yen, institutional investors have grown cautious.
"If risk aversion strengthens worldwide in response to U.S. corporate earnings announcements and Britain's possible exit from the European Union, the yen is likely to stiffen further and make Japanese shares unattractive for a while," said Yusuke Kuwayama of Tokio Marine & Nichido Fire Insurance.
Investors have been avoiding companies particularly susceptible to harm from a rising yen. For example, respondents saying they will keep automotive stocks underweight for now reached 20%, while just 8% said they would keep them overweight. The 12 percentage-point gap shows bearishness not seen since February 2009. Similarly, electric machinery and precision equipment stocks were underweight.
But some say automotive stocks have become a bargain. Toyota Motor's dividend yield topped 3% as of Monday, higher than the 1.9% overall for Nikkei Stock Average components.
"More automotive stocks are becoming good buys in terms of yields," Naoki Fujiwara of Shinkin Asset Management said. "With concern over the stronger yen already largely factored in, prospects of a further slide in share prices are limited."
The survey was conducted April 5 to Thursday and covered 155 respondents.