Japanese investors favoured foreign equities over bonds in August

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Sept 8 : Japanese investors made their biggest shift toward overseas equities in five months in August, pouring 1.3 trillion yen ($8.45 billion) into foreign shares while cutting holdings of overseas bonds, as strong global earnings boosted risk appetite.

The net purchases of foreign equities were the largest since 2.22 trillion yen in March, Ministry of Finance data showed on Tuesday.

At the same time, Japanese investors sold a net 1.02 trillion yen of foreign short-term debt and 143 billion yen of long-term bonds, marking the largest monthly net sales of overseas bonds in five months.

The pullback from overseas bonds came as global debt markets were hit by a sharp selloff, with long-term yields rising on concerns over inflation, heavy government borrowing and the prospect of tighter monetary policy.

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Japanese government bond yields also climbed, with the benchmark 10-year yield reaching 3 per cent for the first time in three decades, making domestic debt relatively more attractive to Japanese investors and potentially reducing the appeal of overseas bonds.

The contrasting flows also point to a rotation within foreign assets rather than a broad retreat from overseas markets, with investors maintaining exposure to global equities while reducing fixed-income holdings.

The move came during a strong global earnings season. Data for roughly 94 per cent of companies in the MSCI All Country World Index showed average year-on-year earnings growth of 43.6 per cent, while results beat analysts' estimates by about 9.1 per cent, according to LSEG.

Optimism around artificial intelligence also remained strong. AI bellwether Nvidia forecast late last month that revenue would rise about 70 per cent in its next fiscal year, underscoring continued demand for AI computing.

Japanese investment trust management companies were the biggest buyers of overseas equities, purchasing a net 1.35 trillion yen in August. Life insurers bought 24.9 billion yen of foreign shares.

Both groups reduced their foreign bond exposure, with investment trusts selling 30.1 billion yen of long-term bonds and life insurers selling 137.3 billion yen.

Pension funds moved in the opposite direction in fixed income, buying 2.33 trillion yen of foreign bonds while also purchasing 567.1 billion yen of overseas equities.

Separate Bank of Japan data showed Japanese investors bought 1.22 trillion yen of U.S. stocks and 1.1 trillion yen of European shares through the end of July.

British equities drew 284.5 billion yen of Japanese net purchases over the period and French stocks 23.06 billion yen, while German shares saw net sales of 322.3 billion yen.

($1 = 153.9300 yen)

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