Foreign investors have had just about enough of Abenomics. After pumping record amounts of cash into Japanese shares last year, they’ve hardly added to holdings in 2014.
Inflows are down 94 percent this year to 898 billion yen ($7.5 billion), on pace for the smallest annual amount since the 2008 global financial crisis. The month of April 2013 alone registered almost three times as much foreign investment in the stock market as all of 2014.
These figures provide the clearest look at how global investors have become disillusioned with Prime Minister Shinzo Abe after he pushed through a tax increase in April that sent Japan into recession. Fund managers from Sumitomo Mitsui Trust Bank Ltd. to MV Financial say to lure investors back, Abe needs to move beyond short-term stimulus and start enacting the structural changes he laid out in his initial plan, dubbed Abenomics, to end Japan’s two-decade economic malaise.
Purchases of the nation’s shares through Dec. 19 by investors outside Japan were less than a tenth of the 15.1 trillion yen they bought last year, according to data from the Tokyo Stock Exchange. Trust banks, which typically trade on behalf of pension funds, added 2.7 trillion yen, after offloading about 4 trillion yen of equities in 2013. Individuals were net sellers for a fourth straight year.
Foreigners were more optimistic in 2013, making record purchases of Japanese equities as Abe embarked on his economic policies of monetary easing, fiscal stimulus and structural overhaul, known as the three arrows. The Topix index soared 51 percent to crown Japan as the best-performing developed market.
Economy Stalls
The premier has courted international investors, exhorting Wall Street in a September 2013 speech to “buy my Abenomics.” A year later, the higher consumption levy had pushed the nation back into recession. Non-domestic investors were net sellers of equities this year until the central bank’s surprise easing on Oct. 31. While the Topix has climbed 9.4 percent in 2014, a weakening yen means that in dollar terms, the share gauge is poised for a 4.4 percent loss.
“The sales-tax hike hit Japan before Abe’s third arrow could emerge, and the economy completely stalled,” said Tetsuo Seshimo, a portfolio manager at Saison Asset Management Co. in Tokyo, which oversees about $857 million. “It hasn’t been a market where foreigners had reasons to aggressively buy stocks, and it’s difficult to paint a strong growth story from this point onwards as well.”
With overseas demand for shares drying up, domestic policy changes are filling the gap with state and pension-fund cash. The Government Pension Investment Fund, the world’s largest manager of retirement savings with 130.9 trillion yen in assets, pledged on Oct. 31 to more than double its target allocation for domestic shares.
