| HONG KONG
HONG KONG Dec 20 Japan's December rally has
handed Asia's struggling stock traders an early Christmas
present as the rare flurry of activity in Tokyo helps make an
otherwise bleak year end on a brighter note.
Since elections were called in mid-November, Japanese stocks
have soared on expectations that victory for Shinzo Abe and his
Liberal Democratic Party would force Japan's central bank to
take more aggressive action to reverse deflation and revive
On Sunday, the LDP swept to victory, and on Thursday the
Bank of Japan appeared to bend to the incoming prime minister's
wishes by announcing its third dose of monetary stimulus in four
The Nikkei 225 has risen about 16 percent since Nov.
13. In the same time, the yen - which on Wednesday hit a
20-month-low against the dollar - has lost 8 percent against the
As important to traders as the rise in stock prices is the
corresponding boom in trading volumes which have dwarfed other
Asian markets this week. Wednesday's turnover in Tokyo was
triple that in Hong Kong.
"Japan is our busiest market at the moment in Asia, hands
down, and it hasn't been that way for some years," said Andy
Maynard, global head of trading and execution at CLSA.
The revival of interest offers some relief to brokers at the
end of a dreadful year as a global cross-asset slump in trading
volumes as institutional investors cut back on trading, plus an
uncertain regulatory outlook, pushed banks to cut costs.
DEEP JOB CUTS
Asian trading volumes are down about 20 to 30 percent
year-on-year, according to data from the region's biggest
exchanges such as Tokyo, Hong Kong and Australia, forcing many
banks and trading firms to lay off both traders and analysts who
provide them and clients with research.
Many of the cuts were deepest in Japan, however, as banks
surrendered to the realisation that the global investing herd
had lost interest in a country seemingly mired in two decades of
stagnation and had moved on to more dynamic markets such as
China and even the recovering United States.
According to Greenwich Associates, the annual pool of
commissions paid by Japan and Asia-based institutions to brokers
on Japanese cash equity trades shrunk by about 40 percent from
2007 to 2011.
That has led to a steady exodus from Japan. One of the big
institutions that cut research and domestic sales staff in Japan
this year was Deutsche Bank.
For those still in the market, though, the pre-Christmas
rally has hit like a cloudburst on a drought-stricken land.
"Looking at the yen go and people chasing this rally, some
of the old-timers here are saying 'Welcome to Japan'," said
This sort of burst of activity has happened in Japan before,
only to fizzle out afterwards.
But the revival of interest in Japan - particularly since it
has been led by proxies of risk appetite and liquidity in Japan
namely megabanks, brokers and trading companies - is sending
fund managers back to the drawing board to rethink allocations.
"What I find really interesting is the number of clients who
are active again. A lot of funds who were previously dormant are
coming back," said Trevor Spencer, head of Japan sales trading
at Citigroup Global Markets Japan.
After pulling much of their cash out of Japanese stocks,
many fund managers have been caught off-guard by the latest
rally and are now clamoring to put money back in.
"In cash, it's been one-way traffic. The offshore long-only
funds are big buyers, the momentum crowd is chasing the upside
and on our desk the shorts have decreased very significantly
this week," said Spencer. "On our derivatives desk, there is no
interest in the downside right now."
Tokyo's $3.3 trillion market capitalisation makes it Asia's
largest stock exchange by value of listings, according to the
World Federation of Exchanges, while Japan commands an 8.2
percent weight in the MSCI World equity index.
Yet several leading global funds hold significantly less
than 8 percent of their assets in Japanese stocks. The $113.2
billion American Funds Growth Fund of America, ranked by Lipper
data as one of the world's biggest global equity funds, has a
negligible allocation to Japan.
According to the fund manager's website, it held only one
Japanese stock at the end of the September: $202 million worth
of shares in Toyota Motor Corp.
Franklin Templeton's Templeton Global Fund had just a 4.2
percent allocation to Japan at the end of October, according to
($1 = 84.2600 Japanese yen)
(Editing by Richard Borsuk)