European investors continued buying heavily into Japanese-focused funds in the early months of 2014, indicating optimism over the long-term outlook of the island nation even as the Tokyo Stock Exchange gives up some of its rapid gains from last year, according to research firm Cerulli Associates.
European investment in Japanese-focused funds saw a net inflow of €3.2 bn ($4.4 bn) in the first quarter of the year, following the net inflow of €13.6 bn in all of last year that raised the funds’ assets under management to €61 bn, Cerulli says in its latest monthly report.
The inflows this year and last, spurred by Japanese Prime Minister Shinzo Abe’s program of fiscal stimulus and economic reform, mark a sharp reversal from 2012, when the funds saw a net outflow of €2.1 bn. Net inflows totaled less than €300 mn in both 2011 and 2012.
Cerulli Associates says that, despite the increase, Europeans are still underinvested in Japan and Japanese markets are still likely to gain significantly. The research firm notes that assets under management of US-domiciled funds focused on Japan total €587 bn – almost 10 times as much as Europe-domiciled funds with a Japan focus.
Last year was ‘a bumper year for the Japanese markets. The benchmark Nikkei 225 soared 59 percent but remains cheap relative to its peak,’ says Barbara Wall, Cerulli’s Europe research director. ‘It could double from its current level and still be 30 percent below its record of 38,957 set a quarter of a century ago. This is in sharp contrast to other major economies, notably the US and Germany, which have recently seen their stock markets hit all-time highs.’
Cerulli research also shows that emerging markets equities suffered net outflows of €4.6 bn in the first quarter amid political tension in Ukraine that pits western Europe and the US against Russia. Passive funds, meanwhile, experienced net new inflows of almost €15 bn in the first quarter, with €2.6 bn of that drawn by European exchange-traded fund provider Lyxor.
