After pumping record amounts of cash into Japanese shares last year, foreign investors have hardly added to holdings this year, suggesting Abenomics fatigue.
Inflows are down 94 percent this year to ￥898 billion (US$7.5 billion), on pace for the smallest annual amount since the 2008 global financial crisis. The month of April last year registered almost three times as much foreign investment in Japan’s stock market as all of this year.
The figures show how global investors have become disillusioned with Japanese Prime Minister Shinzo Abe after he pushed through a tax increase in April that sent Japan into recession. Fund managers say that to lure investors back, Abe needs to move beyond short-term stimulus to the structural changes he laid out in his initial plan — dubbed Abenomics — to end Japan’s two-decade economic malaise.
“We need to see a framework where growth is not dependent on monetary easing,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust, which oversees US$325 billion in assets. “If not growth, then at least a way to increase productivity. For now there is nothing like that, so I imagine it will be hard for stocks to keep going higher and for foreigners to take an interest in them.”
Purchases of the nation’s shares through Dec. 19 by investors outside Japan were less than a tenth of the ￥15.1 trillion they bought last year, according to data from the Tokyo Stock Exchange. Trust banks, which typically trade on behalf of pension funds, added ￥2.7 trillion, after offloading about ￥4 trillion in equities last year. Individuals were net sellers for a fourth straight year.
“[Japanese] have lost their place as global leaders. The potential exists in Japan for recapturing some of that, but it requires profound changes and changes are just not something that Japanese are good at,” Bethesda, Maryland-based MV Financial investment strategy and research head Katrina Lamb said in a telephone interview. The firm oversees US$500 million and has been avoiding Japanese stocks.
Foreigners were more optimistic last year, making record purchases of Japanese equities as Abe embarked on monetary easing, fiscal stimulus and structural overhaul, known as the “three arrows.”
The TOPIX soared 51 percent, to crown Japan as the best-performing developed market.
Non-domestic investors were net sellers of equities this year, until the central bank’s surprise easing on Oct. 31. While the TOPIX has climbed 9.4 percent this year, a weakening yen means that in US dollar terms, the share gauge is poised for a 4.4 percent loss.
“The sales-tax hike hit Japan before Abe’s third arrow could emerge, and the economy completely stalled,” said Tetsuo Seshimo, a portfolio manager at Saison Asset Management Co in Tokyo, which oversees about US$857 million. “It has not been a market where foreigners had reasons to aggressively buy stocks, and it is difficult to paint a strong growth story from this point onward, as well.”
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