Tokyo Sonata calls the tune for investors

April 29, 2013

The jury may be out on whether Messrs. Abe and Kuroda will succeed in cajoling the Japanese economy from its decades-long funk but the cash is betting they will. Domestic and foreign investors have stampeded for Tokyo equities, and Morgan Stanley has been crunching the numbers.

Since 2005, Japanese investors built up a 14 trillion yen (over $140 billion) portfolio of foreign equities. But between January-March 2013, they offloaded a third of this — about $39 billion.  Going back to July 2012 when they first started bringing cash home, the Japanese have sold $53 billion in foreign equities, or 36 percent of equity holdings.

If one were to include all foreign portfolio investments, they sold a net $74 billion worth of assets in the first three months of 2013. Morgan Stanley says this is the the most since 2005. You can see their graphic below (click on it for a bigger version).

 

Not surprising then that the Nikkei has been on a roll with returns of  34 percent this year. Aside from the Japanese money, foreign cash has also flooded in — foreigners have bought $23 billion worth of Japanese equities in the first two months of 2013, according to Japanese government data.  Broadly, that is a 7 percent rise in cumulative holdings. Asian investors’ holdings alone have jumped 26 percent.

So what now? Morgan Stanley’s survey of Japanese funds revealed that most had higher allocations to local equities than usual. While only around 5 percent said they would increase their weighting, half  of those surveyed intended to keep the current position.

“This data supports our view that further upside for the Japan equity market is data and policy dependent,” Morgan Stanley analysts wrote.

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