Foreign investors’ selling of Japanese stocks has been relatively contained -- until you look at the futures market.

Goldman Sachs Group Inc. estimates that 84 percent of their outflows from the start of December through mid-January were transacted in futures, with traders from outside Japan dumping 3.1 trillion yen ($26.1 billion) of the contracts. That compares with 626 billion yen in sales of cash equities. Foreigners are fleeing on concern Japan will be harder-hit than other nations from the slowdown and financial-market turmoil in China, Goldman Sachs analysts led by Kathy Matsui wrote in a note dated Jan. 27.

“Foreign investors have been the main source of Japanese equity selling," they wrote. “Historically, Japan has tended to have a relatively high correlation with the U.S. stock market; recently, however, Japan’s correlation with Chinese equities has also risen sharply. This may be due to the perception that Japan has become highly vulnerable to a sharp slowdown in Chinese growth and/or a sharp devaluation of the yuan."

Those concerns are overblown, according to Goldman Sachs, which says China accounts for just 5 percent of sales for companies in the Topix index.

The Topix fell into a bear market last week. The measure is down 11 percent since the start of December, compared with a 9.8 percent drop for a gauge of global equities, as signs of a deepening slowdown in China and plunging oil prices spur concern about the growth outlook.

Oil Funds

Investors are worried that sovereign wealth funds from oil-producing nations are dumping equities in Tokyo, Goldman Sachs wrote. Norway’s fund had almost 301 billion krone ($35 billion) invested in more than 1,500 Japanese companies at the end of 2014. While the data are hard to track, the correlation between oil prices and flows to Japan cash equities from Europe or the Middle East appears to be low, according to Goldman Sachs.

Foreigners sold 447 billion yen of Japanese stocks in the first week of the year, and about half as much in the following period, according to data from the exchange. They offloaded more than 1 trillion yen of shares in one week amid September’s selloff, the most on record.

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