Skip to main content

Japan Investors Shift To Alternatives

For the 5th year running, Eurekahedge conducted the annual survey of Japanese investors with mandates to invest in Japan. The survey itself was conducted in April 2018 to gauge important insights into market sentiment, investment trends and key regulatory challenges facing the Asian asset management industry, with a particular emphasis on the outlook for Japan.

Eurekahedge Chairman & CEO, Satoshi Iwanaga said: "The annual Japan investor sentiments survey is one of the most important sources of insights into key investor preferences among Japanese investors. This year is all the more special as it marks the fifth year running since Abenomics captured the imagination of the world in 2013. Survey results for 2018 suggest that central bank policy normalisation is still a long way off in Japan, with investors continuing to reduce their traditional portfolios in favour of alternatives in their hunt for better yield. Furthermore, despite worries over Chinese growth tapering off and the ‘unpredictable’ coming from the Trump administration, investors appear to be holding their nerves as the fewest proportion of respondents since the survey first began 5 years ago expect any major financial calamity in the markets in 2018."

A total of 100 respondents managing in assets of US$500 billion were surveyed and the following highlights were noted:

Market Outlook - Frustrations with Abenomics and expectations of continued policy support from BOJ

  • While the proportion of respondents who feel Abenomics has been considerably successful has recovered from lows of 16% in 2016 to 35% in 2018, it is still well below the levels seen in 2015 when almost 72% of respondents had indicated Abenomics had been considerably successful.
  • Despite the strong equity market performance in 2017, more than half of the respondents still expect the BOJ to do additional QQE, albeit the proportion of such respondents is down from 2016 when almost 90% anticipated easing. Overall sentiment regarding the Nikkei 225 index is slightly bullish, with 44% of the respondents believing that index would end the year slightly above 22,500.
  • Almost 60% of the respondents expect the yen to depreciate in 2018, and rest around the 115 mark to the USD - an expected 10% depreciation for the JPY vs. the USD from its March 2018 high.
  • 86% of the respondents feel oil prices will decline below the US$70/barrel mark, with almost 55% of respondents expecting prices to hover around the US$65 mark.
  • The vast majority of respondents still feel that the BOJ will be unable to meet its 2% inflation target, with almost 70% of these respondents expecting either an additional round of QE or BOJ intervention to cut rates into negative territory.

Investment Trends - Less traditionals, more alternatives and a firm ‘No’ to crypto-assets

  • 81% of the investors surveyed in 2018 indicated no plans to change their current allocations across asset classes, compared to 73% of investors surveyed in 2017 and 84% in 2014 who indicated the same. Overall respondents indicated higher levels of satisfaction with the performance of their underlying investments with only 6% (down from 19% in the previous year) who indicated they were dissatisfied.
  • For those who indicated a change in their overall portfolio allocations in 2018, traditional investments are being displaced in favour of alternatives which are seeing their portfolio share increase from 19% to 26% on an asset weighted basis. Of this planned increase in allocation towards alternatives, hedge funds, infrastructure and private equity account for 38%, 22% and 20% respectively.
  • 49% of the respondents were ‘pessimistic’ in their view in crypto-currencies, and 93% are neither allocating nor planning to allocate into crypto-currencies.

Challenges Going Forward - Regulatory compliance costs, MiFID II, Chinese growth and Trump Administration

  • In terms of regulations which have impacted their business the most, respondents cited the MiFID II as the top regulatory concern (32%) followed by J-FSA inspections (30%) and Basel III (19%).
  • Respondents cited increased worries about the cost of regulatory compliance, with 46% indicating additional costs as a key challenge, up from 42% back in 2017. The sentiment was echoed on the hedge fund side where the cost of regulatory compliance expressed as a percentage of total costs has increased - 26% of respondents indicated overall compliance costs in the range of 10-15%, up from 8% in 2017.
  • China’s slowdown and territorial disputes was perceived to be the most significant geopolitical challenge (24%), followed by the US financial policies under the Trump Administration (22%).
  • 48% believe that a financial crisis of the likes of 2008 is unlikely to happen this year, while 28% feel that the possibilities cannot be dismissed. This would be the lowest proportion of respondents on record in the last 5 years who are expecting a major blow up in the financial markets.

The full report of the results of this survey is available in PDF on the Eurekahedge Dashboard for Eurekahedge's subscribers and the survey participants only.