“Japan Equity Mutual Funds Cash Out Amid Rally Slowdown”, Investors exhibited a notable retreat from Japan-focused equity mutual funds during May, reflecting a significant cash-out trend. This move comes amidst a waning momentum in the market’s prolonged rally, coupled with looming concerns over potential interest rate hikes. The combination of these factors has prompted investors to reassess their positions in Japanese equities, leading to a sharp pullback from mutual funds focused on this market.
According to data from LSEG Lipper, both domestic and global equity mutual funds, primarily focusing on Japanese stock markets, divested assets totaling $7.2 billion. This divestment marks the highest recorded figure in the past eight years.
The significant sell-off underscores a notable shift in investor sentiment towards Japanese equities, possibly reflecting concerns about the market’s trajectory amidst dwindling momentum and the specter of impending interest rate hikes.
The outflows show investors are taking money off the table after a sparkling run that carried the benchmark Nikkei to record heights and up some 30 per cent in 17 months.
The cashing out is also large enough to suggest enthusiasm for further buying may be waning as markets also expect interest rates to rise in Japan, perhaps as soon as next month.
“Our view is that the Japanese market will likely tread water in the short- to medium-term after the run up in stock prices,” said Martin Schulz, senior portfolio manager at Federated Hermes.
He also attributed the outflows to profit-taking and concerns over the domestic political climate. Recent surveys show support for Prime Minister Fumio Kishida at its lowest since he took office in 2021.
The Nomura NF Nikkei 225 ETF led the sell-off with outflows of $2.07 billion, while the Nomura NF TOPIX ETF and iShares MSCI Japan ETF withdrew $1.28 billion and $699 million, respectively.
