After the so-called lost two decades of low growth opportunities and a dearth in foreign investment options, Japanese households are now sitting on a hoard of cash. Consequently, some exchange traded fund sponsors see an opportunity to capitalize on pent-up demand for international exposure.
“Here in Japan, it is very clear the non-domestic equity share of investments in this market is significantly lower compared to Europe or to the U.S., so there is much more need for diversification in general,” Harmut Graff, CEO of index provider Stoxx, said in a CNBC article.
Consequently, partnering with Nomura, Stoxx began offering the Stoxx Asean-five Select Dividend 50 ETF on the Tokyo Stock Exchange. Looking ahead, Graff believes these types of products will gain popularity after the launch of the Nippon Individual Savings Account (NISA) program, which provides a five-year tax reprieve on dividends and capital gains if the funds are held in equities, mutual funds or ETFs, with the exception of bonds.
After 20-years of low economic growth and deflation, about 825 trillion yen, or $8.06 trillion, of Japanese household assets are stashed away in cash and deposits, according to the Bank of Japan. The government is hoping to attract 25 trillion yen into NISA by 2020.
Nomura calculates that share prices can rise 5.2% annually if 1 trillion yen is shifted over to NISA per year. [WisdomTree: Will Japanese Investors Buy More Stocks?]
Nevertheless, ETF providers will have to contend with a home bias. According to Franklin Templeton’s Asia-pacific data, Japanese investors are the most biased toward their home country, with 54% preferring Japanese equities, compared to Australia at 45% and China at 35%. Others, though, believe Japanese investors can look past their domestic investments.
“Japanese investors are not particularly different from other investors,” Ed Rogers, CEO of Rogers Investment Advisors, said in the article. “There’s a sliver of the population that’s always interested in international investment and diversifying away from home country risks.”
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Max Chen contributed to this article.