Japan’s Retiring Retail Enthusiasts
Japanese retail fund outflows to emerging market debt and equity continued through August, despite heavy US and European inflows tipping both classes into the popular positive column against the background of negative and low-yielding developed markets. A shift has long been expected among aging individuals and households controlling the bulk of savings, but they were burned on local currency swings before and may be waiting for a lasting uptick with the threat of another Federal Reserve rate increase still active. Finance Ministry statistics, mainly reflecting institutional preference, show overseas securities allocation up since June, to the US and Europe in particular. Second quarter GDP growth barely registered at 0.2 percent and inflation will be even lower than that number according to the revised forecast, as business and consumer sentiment soured on the apparent Abenomics impasse after a 3year trial. The central bank already buys one-quarter of government debt and invites additional market distortions with expansion into corporate bonds and share ETFs. The strategy may turn to fiscal stimulus to pause monetary channels with a $275 billion high-tech infrastructure package recently proposed, although less than half is new money. The Prime Minister will also delay a planned consumption tax rise in a push to attain 1 percent growth this year, and to safeguard against external weakness with China and other big developing economy slippage and the likely US failure to adopt the TPP free-trade pact. He placed the treaty at the core of early structural reforms, which included better corporate governance for Tokyo stock exchange listings and more female workforce entry, and the record there too has been mixed and unable to decisively change local and foreign investor perception. In the meantime the yen has fluctuated between extremes based on a combination of internal and global factors, the latest featuring safe-haven strengthening in the wake of Europe’s Brexit vote.
Korea’s won has also appreciated on 2.5 percent growth with the PMI index at 50 on uneven monthly export data. Electronics and heavy industry sales softened in July, as struggling shipbuilders get debt relief with state aid. Stocks were up almost 10 percent on the MSCI Index before more reported North Korean missile launches shook sentiment. Construction and consumer plays were favorites after the President unveiled another $17 billion spending injection, the third since taking office. The outlays also sustain household credit, which continues to swell over 10 percent annually as experts fear a bubble. The central bank has been on hold with 1 percent headline inflation as it considers stricter mortgage loan practice. The search for alternative economic drivers has crystallized around a new anti-graft law which goes into effect in September to bar civil servants from receiving traditional chaebol conglomerate favors and gifts. The President campaigned on an anti-corruption platform specifically targeting such behavior, but farmers and merchants have protested the statute as an income squeeze and demanded the Constitutional Court strike it. A family member of the Lotte Group was accused of bribery recently, but the cultural and legal line between hospitality and solicitation will remain murky even after the new guidelines, which may force more creative relationship-building as education innovators have long insisted.
