Goldman Highlights Japan Bond-Proxy Stocks for Low-Rate Market

(Bloomberg) -- Japan’s stock market may see a revival in a “search for yield” investment approach as investors seek stocks with the characteristics of bonds amid a low-rate environment, according to Goldman Sachs Group Inc.

Lower rates especially in the U.S. are typically not positive for Japanese stocks as they fuel yen appreciation, but there is money to be made in stocks that serve as bond proxies, analysts Kazunori Tatebe, Kathy Matsui and Hiromi Suzuki wrote in a note on March 28.

Bond-proxy stocks -- shares with high yields, low earnings/share price volatility and stable dividends -- include Japan Tobacco Inc., Canon Inc., and NTT Docomo Inc., according to Goldman’s list of 39 Japanese companies.

Bond-Proxy StocksLatest Dividend Yield (%)Price Volatility 3 Year Percent RankEPS Volatility Percent Rank
Japan Tobacco Inc.5.60.960.72
Canon Inc.50.970.71
NTT Docomo Inc.4.50.990.95
KDDI Corp.4.20.970.98
Lawson Inc.4.10.980.73
Source: Goldman Sachs

The financial sector tends to underperform in low-rate environments, while domestic demand-related companies tend to outperform, the strategists wrote. However, since higher labor and distribution costs are pressuring the latter group, a “selective approach” may be warranted, the note said.

“Investors may prefer stocks and sectors that could serve as bond proxies” amid greater emphasis on income returns, the note said.

©2019 Bloomberg L.P.