TOKYO, July 23 (Reuters) - Japanese institutional investors are turning to car makers' shares in search of a reliable growth investment to offset their concerns over weaknesses in previously high-flying technology stocks.
Investors' confidence towards technology stocks is becoming shaky on growing uncertainty over the sector's busines outlook as well as a batch of negative comments by analysts on the sector.
Car makers' shares, however, are cheap, with low price-to-earnings ratios, and the industry has a bright business outlook, analysts say.
"Autos is not a rapidly-growing sector, but its growth has always been sustained and investing in such stocks would be less risky than buying techs," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.
"Unless a great depression occurs, there'll always be a steady demand for cars ... the auto sector's future is easier to picture than that for banks or techs."
The Nikkei average has fallen 8 percent since hitting a year-to-date high on April 26, while the electrical appliances sector subindex has lost 15.8 percent.
But the transportation equipment sector subindex has risen 1.9 percent in the period, with shares in top car maker Toyota Motor Corp. jumping 5.1 percent and Honda Motor Co. Ltd. rallying 7.7 percent.
Data from Daiwa Research Institute shows that the auto sector's weighting in investment funds had risen to 10.8 percent at the end of May, up by 0.7 percent from April, while that of the electronics sector has fallen by 0.5 percent to 14.2 percent.
Underlining the bright outlook, Toyota raised its 2004 vehicle sales forecast by 4 percent to a record 7.39 million units this month. Nissan Motor Co. (7201.T> forecasts further growth over the next four years.
Morgan Stanley upgraded its view on Japan's auto industry to "attractive" from "in-line" earlier this month.
Analysts said that Toyota's PER of 12.91 and Nissan's 10.34 seem low when compared with the average PER of all shares in the Nikkei 225 average of 17.2 for the current year.
Shares with a lower PER than the market average are considered good value.
"We know auto makers are fighting for a survival in the competitive market but Japanese makers surely are in a winning position," said Takashi Miyazaki, a senior strategist at UFJ Partners Asset Management.
"When there's so much worry in the market such as tech firms' outlooks and economic growth in the U.S. and China, we want to invest in something safe. As we manage our clients' money, we can't gamble."