Japan funds’ inflow streak breaks on Abenomics concerns

Caroline Rookes

Investors have pulled money from Japanese equity funds over concern that an element of ‘Abenomics’ could hold back the country’s growth.

Investors across the globe took a collective $383m from Japanese equity funds during the week ending 31 July, bringing to an end the 27-week inflow streak that has benefitted the products, fund flow data provider EPFR Global says.

The redemptions come after prime minister Shinzo Abe won the Japanese upper house and extended his ability to push through a series of wide-reaching reforms in the world’s third-largest economy.

EPFR Global says: “Although the outlook for corporate earnings, especially in the export sector, remains good investors are starting to focus on the reforms Shinzo Abe’s government may or may not make now it has solidified its position in the legislature’s upper house.

“Plans to increase the sales tax in order to reduce the fiscal deficit are in the spotlight because of the potential risk the increase poses to economic growth.”

Japan is planning to increase its sale tax from 5 per cent to 8 per cent on 1 April 2014. Critics have argued that although this could result in short-term stimulus, as consumers bring forward spending, it could act as a constraint on growth over the longer-term.

EPFR Global also reports that fund investors “took their foot off the pedal” in the last week of July as they awaited GDP and employment data from the US.

Net inflows into equity funds tracked by the analyst slowed to $6.6bn over the week to 31 July, while bond funds saw net outflows of $1.6bn.

Investors continued to channel money into US equity funds, with inflows being seen for five weeks running, while Chinese equity portfolios have now seen outflows for 20 weeks out of the past 22 as concerns mount over the country’s slowing economy.

However, commodity funds captured new money for the first time in 29 weeks as investors returned to gold funds for the first time since the week to 2 January.

“The flows into gold funds came despite a further drop in gold prices and weaker futures contracts for the precious metals. Meanwhile, expectations of increased industrial demand have seen silver funds post inflows for four straight weeks,” the analyst says.