* Global EM funds see inflows; outflows form China, India
* Indonesian equities funds draw strong demand over past
* Nomura Asset launching emerging market sovereign bond
* Sumitomo Trust Asset wants to offer its Asean fund to
By Chikafumi Hodo and Nishant Kumar
TOKYO/HONG KONG, Oct 25 Cash-rich Japanese
retail investors are steadily diversifying their
emerging-markets exposure to ASEAN nations from hot favourites
China and India as the world's fastest-growing major economies
Armed with roughly $15 trillion in personal assets, they are
pouring money into funds with flexibility to invest across
global emerging markets, Indonesia and other ASEAN (Association
of Southeast Asian Nations) countries, given the region's solid
long-term growth prospects.
Japanese investors pulled out an estimated $366 million from
stock funds dedicated to popular India, China and Brazil in
September, increasing net outflows from them to $7.4 billion in
the last one year, data from fund tracker Lipper showed.
In contrast, they invested $624 million in September in
global emerging market equity funds, or about a tenth of the
total assets of such funds, cutting the net outflows from them
in the last 12 months to just over $300 million.
Japanese retail investors have poured an estimated $478
million into Indonesian mutual funds over the last one year,
making it the most popular single-country equity fund category
in Asia's biggest mutual fund market.
Asset management firms such as Sumitomo Trust Asset
Management are responding by launching mutual funds that focus
on ASEAN, Japanese fund industry sources said.
"Japanese investors are keen to hold Indonesian funds due to
the country's bright economic prospects, backed by strong
domestic-led demand," said Namie Katayama, product marketing
manager at PCA Asset Management.
"After investing in countries like China, India and Brazil,
investors believe that the Indonesian economy has potential in
the long run with its wide range of commodities such as coal and
palm oil," Katayama said.
China's economic expansion slowed in the third quarter to
its weakest pace in more than two years. Gross domestic product
grew 9.1 percent from a year earlier, the third consecutive
quarterly slowdown in growth.
And for the quarter ended June, India's economy grew at 7.7
percent, its weakest pace in six quarters.
Emerging market mutual funds have been drawing fresh
investments from Japanese investors keen to diversify away from
the slower economic growth in developed countries and European
markets that are fighting a debt crisis.
"Investors are very cautious about taking on risk, mainly
due to the debt problems in Europe and fears over a U.S.
economic slowdown, but investors want to pour funds into ASEAN
nations due to their convincing long-term growth prospects,"
said Takashi Kawabata, an economist at SMBC Nikko Securities.
"General fund inflows from Japan into Indonesia and ASEAN
countries will continue over the medium and long term."
Pictet Emerging Income Equity Fund , the biggest
beneficiary among global emerging market equity funds based in
Japan, has seen estimated net inflows of $678 million in the
last 12 months, boosting assets to $729 million at the end of
September, Lipper data showed.
The PCA Indonesia Equity Open fund has seen net
inflows of $472 million in the past one year, according to
Lipper, making it the most popular single-country equity fund
The fund has seen outflows recently, but Katayama said
investors were returning to buy on dips.
Indonesian shares are off their one-year low after
the country's central bank unexpectedly cut its benchmark policy
rate by 25 basis points to a record low of 6.50
percent last week.
FUNDS IN PIPELINE
The Nikko GS Growth Markets fund received heavy
inflows of about $600 million, estimates Lipper, after
it was launched in late September, highlighting strong demand
for emerging market funds.
Nikko Ashmore Emerging Markets Tri-Asset F ,
MitsubishiUFJ Emerging Country Bond and Daiwa SB
Emerging Bond were among the other
beneficiaries of Japanese investor interest in the area.
More emerging-country-focused funds are expected to be
offered, with Nomura Asset Management scheduled to launch an
emerging market sovereign bond mutual fund on Oct. 26.
In September, STB Asset Management, the fund management arm
of Sumitomo Mitsui Trust Holding , launched a privately
placed bond mutual fund that allocates 50 percent of funds to
Indonesia and 30 percent to Australia, with the rest invested in
the Philippines, Malaysia, Thailand and Singapore.
STB Asset is also planning to market the fund to Japanese
retail investors before the end of the financial year in March
2012, aiming to boost its assets eventually to about 5 billion
to 10 billion yen, said Genzo Kimura, a fund manager at the
asset management company.
"Interest rates are still low in ASEAN countries relative to
countries like Brazil, but fiscal conditions are very healthy
and they hold current account surpluses as well. The growth
potential is very strong in the region," Kimura said.
"In addition, ASEAN countries have very strong links to
Japan, since many Japanese manufacturers have production
facilities there," he said.
Japanese investors want to diversify further in emerging
markets after becoming heavily exposed to Brazil's currency,
equities and bonds over the past two years.
Investors need to think of alternatives as developed
countries are struggling, while ASEAN countries have more clear
growth outlook, analysts said.
"We acknowledge that huge amount of money from Japanese
retails are concentrated in Brazil. We think that the next
important destination will be Indonesia," said Kenji Yamamoto,
head of marketing and planning at HSBC Global Asset Management.
"Investors are gradually shifting into Indonesia. Interest
is especially growing from distribution channel of Japanese
regional banks," Yamamoto said.
($1 = 76.720 Japanese Yen)
(Editing by Muralikumar Anantharaman)