March 9, 2015 / 9:00 PM / 4 years ago

Entry of long-term investors helps Japan shares see a 'serene' rally

* Foreigners buy record amount of Topix futures in February
    * Buying led by long-term investors, rather than hedge funds
    * Fall in implied volatilities fuels hope for steady gains

    By Tomo Uetake
    TOKYO, March 10 (Reuters) - Japan's stock markets are again
attracting foreign investors, and there are signs some of them
will park their money for a long time rather than a brief stay. 
    When the Japanese market rallied in early 2013 on excitement
about new Prime Minister Shinzo Abe's reflationary thrust, that
was driven by speculators such as hedge funds. As Abenomics lost
its lustre, many foreign investors moved off.
    The latest influx involves some money managers with a
long-term investment time frame. This gives some hope that
Japan, whose stock market has been one of the world's choppiest,
could see a "serene" rally - steady gains without sharp
volatility and abrupt reversals.
    While investors are not convinced if Abe's reforms will
boost corporate Japan's productivity, they have some reasons to
be optimistic, such as possible rises in wages and consumption.
    "Today the market reflects higher earnings due to a strong
global economy, a weaker yen, the hope of further reform from
Abenomics and some evidence of better corporate governance,"
said Robert Taylor, partner and portfolio manager at Harris
Associates, a Chicago-based mutual fund manager.
    During 2014, according to exchange data, foreigners were net
sellers of 337 billion yen ($2.79 billion) of futures in the
Nikkei and the Topix. Last month, they were net
buyers of 2.386 trillion yen - which Daiwa Securities analyst
Shingo Kumazawa says was the largest monthly amount since the
brokerage began keeping such records in 1997.
    
    THE PREFERRED MARKET 
    What caught market players' attention was not just the
volume of foreign February purchases, but that a large amount of
the funds were invested in Topix <0#JTI:>, rather than Nikkei
<0#JNI:>, futures. 
    So far this year, the Topix is up 8.8 percent, compared with
a 5 percent drop in the same period of 2014.
    Many long-term investors prefer the Topix to the Nikkei, as
the latter gives disproportionately heavy weighting to a handful
of companies whose shares have high prices, such as Fast
Retailing.
    So when foreigners in February were net buyers of 1.471
trillion yen in Topix futures, smashing November 2014's monthly
record of 979 billion yen, that was seen as a signal long-term
investors had stepped up their market participation. 
    Market players said some of the buying in the Topix futures
likely came from major "real money" investors, such as sovereign
wealth and pension funds.
    The options market provides further evidence that the
overall Japanese stock market is less driven by speculators than
in the past.
    
    REDUCED VOLATILITY 
    Implied volatilities, or the level of choppiness investors
expect, have been falling, with the Nikkei volatility index
 flirting with five-month lows around 19 percent.
    "When hedge funds buy, they typically buy call options. So
the fact that implied volatilities are not rising shows that the
latest rally is driven by long-only investors rather than hedge
funds," said Naohide Une, managing director and head of equity
derivatives trading at Goldman Sachs.
    He also said that the way implied volatilities of all tenors
of options are falling "suggests that markets are pricing in a
serene rally".
    Falling volatility, by itself, could encourage long-term
foreign investors to invest in Japanese shares, whose frequent
past volatility has cut their attractiveness.
    At the same time, the returns in Tokyo for dollar-based
investors have been increasing.
    Last month, both the Nikkei and the Topix rose above their
respective 2013 peaks in dollar terms. 
    So far this year, Topix has gained 7.6 percent in dollar
terms, handily beating the 0.6 percent rise for the S&P 500
.  

($1 = 120.8600 yen)

 (Additional reporting and writing by Hideyuki Sano; Editing by
Richard Borsuk)
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below