The 94% Plunge That Shows Abenomics Losing Global Investors

Source: Bloomberg

By Yuji Nakamura and Yuko Takeo
December 29, 2014

AbeForeign 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.

Abenomics: Japan’s Economic Shock Therapy

“We need to see a framework where growth isn’t dependent on monetary easing,” Ayako Sera, a market strategist at Sumitomo Mitsui Trust, which oversees $325 billion in assets. “If not growth, then at least a way to increase productivity. For now there’s nothing like that, so I imagine it’ll be hard for stocks to keep going higher and for foreigners to take an interest in them.”

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.

‘Buy Abenomics’

“Where is the Japanese Facebook? Where is the Japanese Google?” Katrina Lamb, head of investment strategy and research at MV Financial in Bethesda, Maryland, said in a phone interview. The firm oversees $500 million and has been avoiding Japanese stocks in its international portfolios. “They have lost their place as global leaders. The potential exists in Japan for recapturing some of that, but it requires profound changes and changes are just not something that Japanese are good at.”

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.

Please go to Bloomberg’s web site to read this entire article on Abenomics failure.

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