By Chikafumi Hodo and Kevin Plumberg
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: Quote, Profile, Research, Stock Buzz) 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. Continued...
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