Tuesday, May 24, 2011

Japanese investors exiting emerging markets; dump Indian stocks

Japanese investors exiting emerging markets; dump Indian stocks

MUMBAI: Japanese funds have redeemed investments in Indian equities worth close to ?19 billion or $0.25 billion in April alone, as they increasingly look to reinvest in stocks of companies back home which are now finding favour with some of the top global investors.

The trigger for this selloff has been the renewed interest among investors, including Marc Faber, author of the Gloom, Boom and Doom report and a global investor, Goldman Sachs and Deutsche Bank, who are now bullish on Japanese stocks, saying returns could be higher with more firms there adding cash on their books.

What has also influenced their decision to dump Indian stocks is the under-performance of the Indian markets this year. The Nikkei has gained close to 13% since March this year, when the country was hit by a devastating earthquake. The rise in the Japanese markets corresponded with losses in the Indian markets with the 30-share Sensex sliding over 11% since the start of this year.

Since May 2010, Japanese funds have been net sellers in Indian stocks except for a couple of months last fiscal. Investors earlier sold fund units worth ?37 billion and ?19 billion in September and October 2010, respectively. 

In 2010, India-focused offshore funds in Japan recorded an outflow of ?145 billion, or about $1.77 billion. This was the highest annual outflow from these funds since 2004. The total asset under management of India offshore funds in Japan declined 3% at the end of the quarter to March at yen 718 billion, according to Morningstar Research- which tracks global funds.

"Japanese investors sold emerging market funds as part of their profit-booking exercise. This does not mean that Japanese investors have lost faith in Indian shares. In fact, we are already seeing them reinvesting in emerging market funds," Toshiro Ishibashi, president & CEO of Daiwa Asset Management told ET.

According to Ishibashi, Japanese investors are putting their money in local mutual funds, most of which have begun paying out high dividends. Apart from local stocks and funds, Japanese investors, who are known to be highly risk-averse, are also investing in property and Latin American real estate funds, global wealth managers said.

"Japanese investors have been exiting emerging market funds for some time now... redemptions in India-focussed funds were higher because India has been an underperformer among emerging markets for quite sometime," said Dhruva Raj Chatterji, senior research analyst at Morningstar India.

According to Chatterji, over-exposure to infrastructure stocks weighed heavily on the performance of several India-focused funds. In their attempt to ride the India growth story, most of these funds had invested in core sector firms such as Lanco Infratech, Reliance Infratel, Jaiprakash Associates and Bhel, which have fallen 15-45% over the past one year. The ET Construction Index, dropped 15% during this period.

PCA India Infra Open and Nomura India Equity are among the funds that have been hit because of huge redemptions over the past few months. A few India-focused yen-denominated funds that managed to generate returns for Japanese investors did it on the back of an appreciating rupee, which gained over 2% in the first three months of this year.

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