Geoffrey Post (pictured), head of international product development at Nikko Asset Management, reports that 2016 continued to be a real success in terms of the firm’s ETF business with assets up from USD26.5 billion to USD34.7 billion.
These figures sit within the firm’s overall index business of USD48 billion, the largest ETF is the Nikkei 225 ETF with USD17 billion in assets.
Post says: “It’s been another good year. Japan is home to the second largest stock market in the world and continues to attract investors. 2016 saw modest export-driven growth. Looking towards 2017, we are hoping that the domestic economy will see real expansion on the back of global trade.”
Post believes that President Trump and Trumponomics, including tax reform and deregulation in the US, should be beneficial for trade, particularly for Japan which is a major partner to, and a significant investor in, the US.
“We recognise there is a risk if the US’s actions disrupt global trade by overturning the established global trade order. We are cautiously optimistic but there is risk.”
Currency is very important for Japan as there is wide spread anticipation that the US dollar will remain strong compared to the Yen.
“This is a function of the US rate cycle and also the Japanese government’s apparent total commitment to a negative interest rate policy. If they maintain that and US rates rise, that will impact the Yen.”
Nikko Asset Management’s new products over 2016 centred very much on the theme of negative interest rates. “What we have seen is institutions in Japan looking to reduce their weightings to Japanese government debt and increasing them to both equity exposures and overseas bonds.
“We launched funds that invest in high dividend low volatility stocks and also launched a couple of ETFs in US treasuries offering the higher yields of overseas bonds,” Post says. “The fourth ETF this year is not so much on the negative interest rates theme but more aligned to the Government looking to foster Japanese companies of the future.”
Post explains that the Japanese government has worked with a number of asset management houses to seed new ETFs focusing on investment in physical and human capital.
In response, Nikko Asset Management has launched the Japanese Economy Contributor Stocks ETF, based on an index co-designed with JPX and S&P.
“The government is committed to spend USD3 billion a year investing in these ETFs which have a bias towards companies in Japan that are making significant investments in capital research and development and also human capital,” Post explains. “It’s interesting in the Japanese context as they are trying to harness the best of the `job for life’ idea, but make employers realise that in an economy with almost no unemployment there is a war for talent. In the past, mid-career job change was unusual.”
Nikko Asset Management’s investor base is broadly diversified, with the majority represented by Japanese trust banks but there is also what Post calls `a meaningful proportion’ of private investors and ex-Japan foreign investors.
