Its one of the biggest questions in global finance
today: Will the aggressive reflation strategy of Prime Minister
Shinzo Abe succeed in ending Japans nearly 20 years of
Global investors and analysts are divided on the issue, but
Charles Beazley, the chairman and CEO of Nikko Asset
Management, says Abenomics is already changing the behavior of
Shortly after Prime Minister Shinzo Abe was elected in
December and embarked on policies to inject massive liquidity
into the economy to defeat deflation and kickstart growth,
Nikko Asset Management launched a new fund designed to give
investors exposure to economies in the Americas. The Nikko
Gravity Americas Fund pulled in $3 billion from retail
investors in just eight weeks, making it the largest U.S.
equity-oriented fund launch ever in Japan, and more than 10
times larger than Nikkos average new fund.
This demonstrates rising interest in securities, and
particularly rising interest in investing in the U.S.,
says Beazley, whose firm is the third-largest mutual fund
company in Japan with $154 billion in assets under management.
Most of these investors had bought products predominantly
for yield, he adds, such as emerging-markets funds and
real estate investment trusts.
If Abe succeeds, and we are betting that he will, we
will see confirmation things are on right track in a few months
time, Beazley says. We are looking at signs of
increasing retail sales, capital expenditure revival, labor and
regulatory reform, progress on import reforms and progress on
signing the Transpacific Partnership proposed by the
The Abe governments reflationary policies are
succeeding in raising the risk profile of Japanese households,
says Naka Matsuzawa, Nomura Securities chief Japan Rates
Strategist in Tokyo. Retail investors are taking savings out of
banks, where they earn nearly zero interest rates, to invest in
equity markets. In February alone the mutual fund industry
raised more than 1 trillion yen ($9.8 billion) in fresh assets,
Matsuzawa notes. A year ago the industry was essentially flat
or experienced modest net redemptions.
The Nikko Gravity Americas fund has a 67 percent weighting
in U.S. shares, with the rest split among the Mexican, Latin
American and Canadian markets. The fund allocates 18 percent to
financial stocks, the highest sectoral weighting, followed by
15 percent each to information technology and energy.
Beazley says he sees more fund launches in the months ahead,
and believes the mutual fund industry can boost its share of
Japanese household assets which stand at more than $15
trillion to 4.8 percent in coming years from 3.8 percent
Recently, J.P. Morgan Asset Management launched two new
funds the JPM North America High Dividend Equity Fund
and JPM Nikko Asia Americas Discovery Fund both of which
sell to Japanese retail investors. It is not yet known how much
either fund has raised.
Also Tsukasa Shimoda, the founder and president of Galleyla
Investment, is in process of launching a long-short fund
the UMJ Galleyla Fund which has the capacity to take in
up to 20 billion yen ($213 million). This is a rare launch in
Japan, given that early last year there was the $1.4
billion-loss cover-up scandal of Tokyo-based asset manager AIJ
Investment that rocked the fund industry, forcing many domestic
pension funds to review their portfolios in hedge funds.
In addition to household savings, Japanese corporates may
soon raise their risk profiles. More than 100 companies listed
in the First Section of the Tokyo Stock Exchange have more cash
on their balance sheets than their market capitalization.
Japanese companies have hidden strengths and are
extremely resilient, and the amount of cash sitting around in
Japan has built up to very, very large proportions,
Beazley says. When deflation ends, this money will look
for different homes. So Japan has to start expanding capital
expenditures again. This liquidity will go into the domestic
market as well as international markets.