Stock market volatility has scared investors off the Japanese index, after two years of solid inflows. According to the ETP Landscape Snapshot for March, compiled by BlackRock, investors across the globe made redemptions of $700 million last month – the first outflows for Japan on record for two years.
Last year Japan was among the best performing stock markets, climbing solidly for much of 2013. Thanks to currency weakness and strong political policies, investors felt strong enough conviction to pour $155 billion into the Japanese stock market. However, by March 25, scared off by stock market volatility, more than $12 billion of foreign cash had already been withdrawn.
Chris Taylor, manager of the Neptune Japanese Opportunities fund said: “To be honest most of the money that went in last year was foreign money, most of it American. Sadly U.K. and European institutions actually managed to put in less money than they did during the first quarter of 2011, just before the earthquake and tsunami.
“I would argue American impatience is mainly driving the money that's come out. And they have reasons not to like it and to take profits, which, again gets back to the U.S. and Chinese economic figures because they have done terribly well.”
In the month of January, global investors deposited $4.2 billion into Japanese equity ETFs, and in the month of February an inflow of a further $4.2 billion was recorded.
The BlackRock ETP report blamed the anticipation of economic contraction in the second quarter of 2014, due in part to April’s planned sales tax increase from 5% to 8%. The March outflows caused year-to date asset gathering to fall behind last year’s pace.
As well as outflows from Japanese equity ETFs, the report revealed Pan-European equity ETFS also saw outflows of $900 million thanks to the slow pace of the eurozone’s economic recovery. Concerns about the future of Ukraine and its relations with both Russia and the EU also dampened investor appetite for the region.
One sector that did see an increase in funds under management in March was gold ETFs, which, following a difficult couple of years, saw inflows of $600 million, thanks in part to an increase in the gold price of 7% so far this year.
A word of warning from BlackRock however: “Additional asset gathering is unlikely in an environment where the dollar strengthens and real interest rates rise. The Fed’s latest guidance on interest rates made this scenario more probable and gold fell 7% in late March.”
