Japanese Investors Seen to Be Bullish in Foreign Equities

Photo:Freepik

Japanese investors are displaying hesitancy towards domestic stock markets despite the Nikkei's recent surge beyond bubble-era peaks. Uncertainty about sustained corporate returns and memories of the 1990s market crash are leading investors to allocate more funds to foreign equities. The promising outlook for U.S. stocks, particularly in the tech sector, and opportunities in emerging economies like India are drawing Japanese investors away from their home markets.

According to Morningstar, Japanese equity funds focused on domestic markets received only $1.2 billion in January, while funds with a foreign investment focus saw an inflow of $7.8 billion. Among these, U.S.-focused equity funds received $3.8 billion, global equity funds secured $3.1 billion, and Indian equity-focused funds saw an influx of $763 million during the same period.

Despite a strong rally fueled by foreign investors, the local market requires a domestic bid to sustain its upward trend. Japanese households hold approximately $7.7 trillion in cash and deposits, representing a substantial potential impact on the Nikkei. Currently, they allocate just 13% of their assets to equities, significantly lower than 40% in the U.S. and 21% in Europe.

After a year-long rally driven by factors like cheap valuations and corporate reforms, the Nikkei index is slowly retreating from recent record highs. To boost positive momentum, Japanese individual investors need to participate actively in their own market. The Nippon Individual Savings Account (NISA) program, a Japanese government tax-free stock investment initiative, aims to encourage individuals to shift trillions of yen from cash holdings to investments in the stock market. This shift is seen as crucial for sustaining positive momentum in the Japanese market.