Korean investors flock to Japanese stock market to buy U.S. ETFs

2023.05.26 10:49:02 | 2023.05.26 13:50:41

[Image source: Gettyimagesbank]이미지 확대

[Image source: Gettyimagesbank]

South Korean investors are turning to Japanese stocks that reached their highest level in 33 years last week, with many of them buying Japan-listed U.S. exchange-traded funds (ETFs) as they hope to gain from a stronger yen.

According to data from the Korea Securities Depository on Thursday, Korean investors net purchased $6.79 million worth of iShares 20+ Year U.S. Treasury Bond JPY Hedged ETF, a product that invests in long-term U.S. bonds in yen, between April 24 and May 24.

The ETF can be purchased directly in dollars through foreign stock trading in Korea but investors chose to trade on the Japanese market as it allows them to purchase it in yen and expect for a gain from a stronger currency later on.

The term “JPY Hedged” in the product indicates that its return is not affected by the value of the yen against the dollar.

Individual investors also net purchased $4.59 million worth of Global X Japan Semiconductor ETF, which invests in Japanese semiconductor equipment and materials companies.

They also bought massive shares of ASICS Corp. worth $1.97 million, Nedic Corp. $1.72 million, CELSYS Inc. $1.52 million, and Mitsubishi Corp. $1.36 million.

Individuals are also buying Japan-related ETFs listed in the Korean market.

Individuals net purchased 6.9 billion won ($5.19 million) in Mirae Asset Tiger JPY KRW Futures ETF, which bets solely on the rebound of the yen without being affected by stock market fluctuations, and 2.3 billion won in Mirae Asset Tiger Nikkei 225, which offers potential foreign exchange gains with a strengthening yen.

Investors saw that the value of the yen hit the lowest point of the year as it fell to 139 yen per dollar in the New York foreign exchange market on Wednesday, local time.

It rose to the 127 yen level early this year on expectations for a monetary policy change by the Bank of Japan but it turned weak when the new BOJ Governor Minister Kazuo Ueda announced that it will stick to monetary easing for the time being.

There is growing expectation that the value of the yen will rebound following the end of interest rate hikes in the U.S. and Japan’s shift in monetary policy.

[Photo by MK DB]이미지 확대

[Photo by MK DB]

“The yen-dollar rate will fall as Ueda normalizes Japan’s monetary policy and the U.S. rate hike cycle ends,” said Choi Bo-won, an analyst at Korea Investment & Securities Co.

This means the yen, which had remained weak under monetary easing, can emerge strong in the second half of the year as the U.S.-Japan interest rate gap narrows.

“The interest rate gap between the U.S. and Japan is unlikely to widen further,” said Pyun Deuk-hyun, an advisor at NH WM Masters. “Investors who are buying long-term treasuries in anticipation of a rate cut in the U.S. may also consider investing in the yen.”

The yen, in fact, strengthened against the greenback at the beginning of the year as the BOJ announced in December last year that it would expand the upper end of the target for the 10-year government bond yield, which practically serves as Japan’s base rate, to 0.5 percent from 0.25 percent.

The dominant view is that the country’s monetary easing will take a shift as the consumer price index (CPI) exceeds the BOJ’s inflation target.

Analysts say that the Japanese stock market recorded a 33-year high with the Nikkei 225 index rising 19 percent this year largely because of the weak yen. Experts warn that investing in the Japanese market solely on expectations for a rise in stock prices may be risky.

According to MarketWatch on Wednesday, Adam Cole, chief currency strategist at RBC Capital Markets LLC, said that “most of the Japan’s stock outperformance is a direct result of renewed weakness in Japanese yen, and it could tell us little about domestic policy or economic performance in Japan.”

Cole presented his comparison of the increase in the Nikkei 225 index with the MSCI World Index, an indicator of the performance of mid- and large-cap stocks in 23 developed markets.

Cole noted that in the last 30 years, the Japanese stock market has performed moderately, not the best and that the exchange rate most likely drove the recent rise, unlike many investors’ belief that it was Japanese corporate governance reforms, strengthened shareholder return policies, low valuations, and volatility.

By Kim Geum-yi, Kang In-seon, and Choi Jieun

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