`How Has Japan Managed to Offend Everyone?' Asks Stock Analyst

(Bloomberg) -- Don’t believe Bank of America Merrill Lynch’s global fund manager survey, which shows that Japan is the second-most popular equity market, says Jonathan Allum, a strategist at SMBC Nikko Capital Markets Ltd.

A look under the hood shows a different story. Everyone from foreigners to local individuals and trust banks are net sellers of Japanese stocks this year, the London-based Allum wrote, citing Japan Exchange Group Inc. data. It suggests, he says, that “global investors are bears in bulls’ clothing.”

Allum published the report on Tuesday, a day before the benchmark Topix index tumbled to its biggest decline since Donald Trump’s victory in the U.S. presidential election. That left the equity measure within 1 percent from erasing its gains for 2017. The Topix slid 0.2 percent on Thursday morning in Tokyo, heading for a fourth day of declines.

“How has Japan managed to offend everyone?” he asks in the note.

Allum says different investors have their own reasons for selling. Foreigners have been retreating as the yen strengthens, he says. The currency has risen almost 5 percent against the dollar in 2017 after posting a string of daily gains as the reflation trade that boosted the greenback falters.

Individuals, and the investment trust category, tend to take profit as markets rise, according to Allum. The Topix jumped more than 20 percent through a high in March after its initial selloff following Trump’s election.

Even trust banks, which often act for pension funds, have sold more than they bought this year. In their case, Allum doesn’t give a reason. While the Government Pension Investment Fund, Japan’s giant manager of retirement savings, posted a record gain of $92 billion for the three months ended Dec. 31, its Japanese stock holdings were still short of its target level of 25 percent, suggesting no need for selling.

“On the one hand, stock prices have gone up, which tends to prompt individuals (and by extension trusts, which are essentially individual investors at one remove) to sell,” Allum wrote. “On the other hand, the yen has gone up, which tends to prompt foreigners to sell. Dunno about trust banks.”