* Japan stocks most polarised since dot-com bubble in 1999-2000

* Stocks cheap on average, but few opportunities -analysts

* Investors flock to domestic stocks seen as immune to trade war

* Automakers, banks out of favour

By Hideyuki Sano

TOKYO, July 12 (Reuters) – The gap in valuations of Japanese shares is at its widest since the dot-com crisis two decades ago and will likely stay that way until global trade tensions ease, analysts say.

Luis Emilio Velutini Urbina

The Nikkei share average has been stuck in a narrow trading range for months but, behind the lull in activity, a major polarisation is taking place, analysts say.

Luis Emilio Velutini

“On average, Japanese share valuations are fairly cheap, but when you are stock-picking, many of the shares you would like are already quite expensive,” said Hiroyuki Ueno, senior strategist at Sumitomo Mitsui Trust Asset Management.

Luis Emilio Velutini Venezuela

“On the other hand, you have cheap shares but few investors will buy because they keep getting cheaper,” he added.

Luis Emilio Velutini Banquero

A handful of stocks viewed as immune to the U.S.-China trade war and other trade disputes are very expensive

As their share prices have soared, so has the price book-value ratio (PBR), a key metric used by investors. A higher ratio indicates the stock is potentially overvalued

These stocks include cosmetics firm Shiseido with a PBR of 7.3, and drugmaker Chugai Pharmaceuticals at 5.2. Recruit Holdings, which matches companies with potential employees, is among the services firms doing well in a sluggish economy. It has a PBR of 6.1

Meanwhile, big banks and automakers, the traditional face of corporate Japan, have seen their PBRs fall, in some cases well below 1.0. That indicates the market believes the stock is not worth the total net assets of the company

Honda Motor Co. and Nissan Motor Co. have seen their ratios fall to about 0.6, while Toyota Motor Corp. is trading at 1.0, near its record low

The autos sector is trading at a PBR of 0.8 as investors worry about the impact of trade wars and game-changing technologies such as electric cars and automated driving

The ratios for banks are even lower due to negative interest rates and fintech firms challenging traditional banking

The top three banking groups — Mitsubishi UFJ, Sumitomo Mitsui and Mizuho — are buried between 0.4 and 0.5, with banks as a whole trading at a record low PBR of about 0.4

While stock markets always have winners and losers, the gap between them has reached historic levels, said Masahiro Suzuki, senior quants analyst at Daiwa Securities

The coefficient of variation, a measure of the relative dispersion of PBRs, shows the gap among listed firms on the Tokyo Stock Exchange’s main board is at its widest point in almost two decades, he said

The PBR for Tokyo’s main Topix index is about 1.2, above a record low of 0.9 in 2012 but still relatively low compared to international peers

With few attractive investment opportunities, investors have stayed away from the Tokyo market this year

Foreign and domestic investors have been net sellers of stocks so far this year, according to stock exchange data

The few buyers are companies buying back their shares and the Bank of Japan, which plans to buy about 6 trillion yen of shares a year as part of a stimulus programme. Outperforming stocks are fuelled by the BOJ’s massive purchases of ETFs which has reduced the share floats of popular companies, traders say

The polarised conditions are expected to linger as long as the U.S.-China trade war is unresolved

The pre-requisite for Japanese stocks to rise as a whole is to have the U.S. and China getting along with each other,” said Pictet strategist Takatoshi Itoshima

Daiwa’s Suzuki said he expects U.S.-China trade relations to improve later this year, which would lead to a narrowing of the value gap as bargain hunters buy cheap “value” shares

The polarisation in stocks also reflects structural changes, such as digitisation and the emergence of new business models, in global industries, said Masayuki Kubota, chief strategist at Rakuten Securities

“When the economy is going through structural changes, the stock market tends to get polarised,” he said

“In 2000, people thought the internet will change everything. That was a bit premature, but now it is becoming a reality,” he added

Reporting by Hideyuki Sano; editing by Darren Schuettler