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Market turmoil attracts Japanese retail investors to foreign ETFs

[TOKYO] Although investors sold global shares worldwide earlier this year, long-term retail Japanese investors stepped up buying in foreign shares through exchange-traded funds (ETFs), seeing the market rout as a good opportunity for bargain-hunting.

In January and February, they bought a net 1.18 million shares in foreign ETFs, 87 per cent more than in the same two months a year ago, based on data from the three Japanese online brokerage firms that are the main providers of foreign ETFs to retail investors in Japan.

The data was provided by SBI Securities Co, Rakuten Securities Inc and Monex Inc and compiled by Reuters.

The number of net buyers in foreign ETFs in the first two months of 2016 jumped 67 per cent to 10,860 on the year, the data showed.

"In a falling market when almost all tickers are sold, it makes people want to diversify their investments to ride over the difficult time," said Yuichi Miyamoto, a trader services manager at Monex Inc.

Interest in the foreign ETFs, mostly US-listed ones, is being driven by demand for diversified risks among long-term Japanese retail investors, traders said.

As global equities markets crumbled early this year on the fall in oil prices and worries about the Chinese economy, these investors seized the chance to buy foreign ETFs at cheaper prices.

The Dow Jones industrial average is at 16,995.13, up 10 per cent from a two-year low of 15,450.56 hit in January.

The S&P 500 is at 1,989.57, also rebounding 10 per cent from a two-year low of 1,810.10 hit last month. "We've seen liquidity in ETF trade to rise in the wake of market crashes in the past, too," said Masafumi Watanabe, an ETF strategist at WisdomTree Japan.

ETFs like Vanguard Total World Stock Index Fund and Vanguard Total Stock Market Index Fund are popular ETF products among Japanese asset holders, the brokerages said.

In February, the brokerages also saw that iShares US Preferred Stock ETF was ranked high for the first time in several years.

Preferred stocks, a hybrid product that share some characteristics with bonds, are popular with investors seeking steady yields.

"This product is being favored by investors who seek high yields amid a low interest rate environment in the world," said Kumiko Kojima, vice president of iShares business at BlackRock Japan. "It's popular among investors who seek income gains rather than capital gains." In late January, the Bank Of Japan joined other central banks in reducing interest rates to negative levels.


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