Japan Equity Bulls Retreat, BofA Global Investor Survey Shows

  • Global investors remain overweight on Japan equities
  • Investors more cautious on economy and earnings outlook

Japan equity bulls are in retreat this month.

The proportion of global investors remaining overweight on Japanese stocks compared with underweight declined by 18 percentage points since August, according to a Bank of America Corp. survey of money managers overseeing $593 billion. Fewer saw the nation’s shares as undervalued, the survey found.

“This shows investors are becoming more cautious on Japan equities,” Kenji Abe, Tokyo-based strategist at Bank of America, said in the report. This implies “upside potential is likely to be limited until investors see evidence that earnings and the economy are improving.”

Japan’s Topix index rose to an eight-year high on Aug. 10 before succumbing to global turmoil that dragged down markets across the world. The Bank of Japan on Tuesday refrained from adding to record monetary easing even after the economy shrank last quarter, betting that a resumption in growth will be enough to rekindle inflation.

The Topix has lost 13 percent from its August peak. Short-selling of shares on the Tokyo Stock Exchange surged to 42.4 percent of total trading value on Monday, the highest since bourse data became available in 2008. The yen touched an seven-month high versus the dollar on Aug. 24, the same week that exchange data showed foreigners fled Japanese equities at the fastest pace in at least a decade.

Bank of America’s survey was conducted Sept. 4-10. Just 8 percent of Japan equity specialists expect double-digit earnings growth, a drop from 83 percent in last month’s poll. A net 22 percent of the investors remain overweight on Japanese shares, meaning they hold more equity than is represented in their benchmark indexes.

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