India's economic growth lures Japanese investors
Money from Japan accounted for 40 per cent of the net inflow from all foreign funds to Indian equities in 2005.Updated: Feb 16, 2006 11:29 IST
Japanese retiree Mitsuo Hirai thinks one of the best places to invest his life's savings is Indian stocks -- and he's not the only one.
Hirai, 73, is one of thousands of Japanese individuals who bought Indian shares via Japan-based investment trusts last year as a way of keeping the value of their money from eroding.
According to Lipper, a fund research unit of Reuters Group Plc, the net inflow into such funds from Japan totalled an estimated 500 billion yen ($4.3 billion) in 2005.
"I like India as the country shares with us principles of capitalism," said Hirai, who bought 2 million yen ($17,000) of an India stock fund last autumn and was considering buying more.
Japanese investors have been investing more and more money overseas in the last few years while local interest rates hover near zero after a decade of economic stagnation.
They have invested a huge amount in foreign sovereign bonds, resulting in a Japan-based foreign bond fund becoming the world's second-largest bond fund after the PIMCO Total Return Fund.
Since around 2003 they have also invested enthusiastically in Chinese stocks. Now they seem to be focusing on Indian stocks.
Money from Japan accounted for 40 per cent of the net inflow from all foreign funds to Indian equities in 2005, helping India's benchmark BSE index gain 42 per cent in the year.
One reason people here are sending so much money overseas is that Japan's rapidly ageing society and zero interest rates.
A chart of Japan's population looks increasingly like a pyramid standing on its head, with a growing number of retirees supported by an increasingly narrow base of younger generations, but India's population has a broader base.
"India's growth potential lies in its huge pool of young workers," Hirai said.
Shinobu Naito, president of Monex University Inc, said younger Japanese worried about a flagging public pension scheme have also put money in Indian stock funds.
The double-digit rally in Tokyo stocks in 2005 has also emboldened veteran investors like Hirai in investing part of their money in riskier assets.
In total, 3 per cent of Japan's 1,400 trillion yen of financial assets held by households have been put into investment trusts, while half of that amount is held in bank deposits and cash.
Glut of money
The widely expected end to deflation in Japan this year poses a threat to investors who rely on interest.
The number of such investors is set to rise as baby boomers look for ways to manage their money after retirement.
"It feels like there is a glut of money looking for somewhere to go," Naito said.
According to Lipper, two Indian stock funds available in Japan recorded the highest net inflows of all equity funds on the market last year.
In first place was a fund managed by HSBC Investments, the core global investment platform of Britain's HSBC. Its HSBC India Open Fund had a net inflow of 60.7 billion yen last year.
That was followed by a net inflow of 55.9 billion yen into an Indian stock fund managed by PCA Asset Management, an affiliate of Britain's Prudential.
While Indian shares are worth around one-tenth of their Japanese counterparts in terms of market capitalisation, investors here are betting on sustainable growth in their value.
First Published: Feb 16, 2006 11:29 IST