BlackRock: Japan holds opportunity

TOKYO Wed Jul 8, 2009 3:02pm EDT

BlackRock Japan Co. Ltd. President and Representative Director Head Hiroyuki Arita speaks at the Reuters Japan Investment Summit in Tokyo July 8, 2009. REUTERS/Issei Kato

BlackRock Japan Co. Ltd. President and Representative Director Head Hiroyuki Arita speaks at the Reuters Japan Investment Summit in Tokyo July 8, 2009.

Credit: Reuters/Issei Kato

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TOKYO (Reuters) - Japan's stability and technology make domestic equities an attractive opportunity, the head of BlackRock's Japanese unit said on Wednesday, adding that a further economic recovery could usher in more client flows from abroad.

Overseas investors have been net buyers of Japanese stocks since March, when a global equity market rally began, Hiroyuki Arita, the firm's president and representative director, said at the Reuters Japan Investment Summit.

"Foreign institutional investors were underweighting Japanese equities. The recovery will bring a very big inflow," said Arita, who also leads the portfolio management group.

He said innovation in areas such as environmentally friendly technology and Japan's stable society make domestic markets attractive, despite the country's significant long-term demographic challenges.

Foreign investors have been net buyers of Japanese equities for the last three months, totaling 1.259 trillion yen, after selling a total 10.31 trillion yen from July 2008 to March 2009, according to Ministry of Finance data.

BlackRock Inc (BLK.N) bought Barclays Global Investors for $13.5 billion last month, creating the world's biggest money manager, overseeing about $2.8 trillion in assets.

Arita declined to give details on the integration of the two, though he said the tie-up is expected to lead to a broad range of services to clients, combining BlackRock's strength in managing funds actively and BGI's strength in index and exchange-traded fund businesses.

Arita said he did not expect to see a major overlap in BlackRock's Japanese business with Barclays Global Investors.

"I think there won't be a big overlap (in Japan)," Arita said, but he said there may be some overlaps globally considering that both companies have massive assets.

FROM INVESTORS TO SAVERS

In the wake of the financial crisis, Arita has been trying to shift the firm's focus in Japan to strengthen its advisory role for both retail and institutional investors.

The company focuses more closely on advisory to Japanese retail investors rather than structuring and marketing new investment trust funds to them, he said.

"We see that retail investors' appetite to shift their assets into investments from deposits have slowed down ... in fact, individuals could be shifting back to deposits," Arita said.

Arita said there is big demand from institutional investors who want to know more about foreign instruments, especially in emerging economies.

A decline in BlackRock Japan's assets under management led the company to cut its workforce, including temporary staff, by 20 percent in the financial year that ended in March, Arita said.

However, the company has not reduced its workforce since then, he added.

BlackRock Japan supervises about $51 billion of assets for Japanese investors.

Arita said he is still keen on investing in countries where growth is holding up over the medium term, such as Brazil, Russia, India and China.

BlackRock Japan is also looking to invest in companies involved in environmental issues or firms developing technologies to reduce carbon dioxide, Arita said.

Indeed, investors globally have actually been more focused on Asia ex-Japan stocks, especially because of the growth prospects for China and India and in general the optimism about emerging over developed markets.

U.S., European and Japanese equity funds saw net outflows of $7.6 billion in the second quarter, while emerging market stock funds absorbed a record $26.5 billion, EPFR Global data showed.

"There is too much liquidity in Japan so we have to invest overseas."

(Additional reporting by Michiko Iwasaki and Yuka Obayashi; Editing by Hugh Lawson)

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