RUSSIA'S unfolding crisis upended the 20 biggest international bond funds sold to individuals in Japan on Wednesday, raising doubts about whether investment managers will be able to secure fresh cash in the near term.
Funds invested in Russia sold by Mitsubishi UFJ Financial Group Inc, Japan's biggest bank, and Nikko Asset Management Co have lost at least 15 per cent of their value in December. The drop in emerging nation bonds and currencies is also hurting other high-yield funds not directly exposed to Russia including the biggest, the Fidelity US High Yield Fund, which has assets of 1.19 trillion yen (S$13.2 billion).
A Bloomberg gauge tracking the top developing nation currencies fell to the lowest since 2002 earlier this week, as Russia struggled to halt the rouble's free fall amid a plunge in oil, its biggest export. The rouble gained 12 per cent against the dollar on Wednesday after the Russian Finance Ministry said it bought the currency. Before the action, the rouble had fallen by 22 per cent from Dec 5 to 16.
Funds that invest in emerging nations' bonds have proved popular with individual Japanese investors as the Bank of Japan has kept interest rates near zero for more than a decade. Japan's Top 20 mutual funds by size also include high-yield offerings from Nomura Holdings Inc and Goldman Sachs Group Inc, according to data provided by Morningstar Inc.
"With currencies of emerging economies falling this much, it will likely be difficult for the funds to raise cash going forward," said Hiroaki Sakamoto, an analyst at fund research company Morningstar Japan K.K. in Tokyo. "Some of these funds offer monthly payouts with high returns so they are popular with individual investors."
An emerging bond fund offered by Mitsubishi UFJ Asset Management Co was the biggest decliner on Wednesday among the Top 20 funds ranked by Morningstar, according its website. The Mitsubishi UFJ Emerging Country Bond fund dropped 4.7 per cent, bringing its decline this month to 15 per cent, according to Bloomberg data.
The Mitsubishi UFJ fund had 15.22 per cent of its money in Russia as at Nov 28, the biggest country by region, according to the fund's most recent monthly report. A Nikko Pimco High Income Sovereign Fund, managed by Pacific Investment Management Co, lost 16 per cent of its value this month so far, putting it on track for the biggest drop since its inception in 2009. It had about 9.3 per cent of its assets in Russia at the end of October, according to a Nikko Asset report on its website.
Over a five-year period Mitsubishi UFJ's fund has returned investors 6.6 per cent and Nikko Asset's has earned 5.8 per cent, according to Bloomberg data. That compares with an average interest rate of 0.04 per cent on a one-year yen time deposit over the last five years, the data show.
The Fidelity US High Yield fund has dropped 5.2 per cent this month, and is on track for its biggest monthly decrease since June of last year. BLOOMBERG