Japanese equity ETFs saw strong demand from European investors in October, although overall global flows into the asset category were negative as Asian buyers made redemptions.
Both European and US investors poured €1bn each into Japanese equity ETFs in October, according to the monthly Amundi ETF Flow Report.
However, Asian allocators withdrew some €3.9bn from the asset class during the month, making total flows a negative €1.8bn. The negative flows come even despite the €2bn of purchases by the Bank of Japan (according to BlackRock’s ETP Landscape report).
Strong Japanese market
The Japanese stock market has seen strong growth this year, with the Nikkei 225 index up some 18% year to date, with especially strong support for equities seen since the landslide victory of Prime Minister Shinzo Abe in the snap general election on 22 October.
Japan’s GDP has also grown for seven straight quarters up to the end of September, owing to strong exports, marking the longest streak of growth since 2001 and fueling confidence in the region.
In Q3 2017, Japan’s economy grew 1.4%, after 2.6% in the previous quarter, and the International Monetary Fund (IMF) has increased its forecast for full year 2017 growth to 1.5% from 1.3% back in July.
However, the benchmark equity index is still well below the bubble level it reached back in 1989, when it surged towards the 39,000 mark; it is currently hovering around 23,000, suggesting the index could still have far further to go.
Equities still in vogue
Meanwhile, overall equities attracted €5.8bn of inflows from European investors in October, out of €6.8bn of total inflows during the month, with the other €1bn going into bonds.
While Japanese equities enjoyed the strongest demand from European allocators, global equity ETFs also attracted €985m, while products offering exposure to Eurozone equities took in €751m.
European investors also continue to show appetite for sectorial and smart-beta ETFs, according to Amundi, with this category taking in €2.4bn during the month, and adding up to inflows of €19.2bn since January.
The financials sector was the most popular in October, taking in more than €413m. Small-cap and multi-factor ETPs also enjoyed strong flows, taking in €396m and €239m, respectively. Since the beginning of the year though, value has been the most popular sector, attracting some €3.1bn in flows.
While Japanese and sector equity ETFs were the most popular categories among European investors in October, US buyers poured a large proportion of assets into the local market, Amundi reports.
North American equity ETFs took in €23.3bn out of the nearly €40bn of total inflows into US-based equity ETFs in October. This compares to a much less pronounced demand for US equities from European buyers, who only poured €401m into the sector.