Towards the end of Alfred Hitchcock’s The Birds, enough feathered weirdness has happened to convince an audience that the rules of nature no longer apply. Tokyo markets are doing something similar — but with more expensive special effects.
Since the start of 2016, companies have spent a record ¥4.35trn buying their own shares, and have since cancelled a record ¥3trn of them. Japan’s central bank is now buying exchange traded funds at a record rate of ¥6tn a year. And a record high 55 per cent of non-financial companies in the Topix index now hold more cash than interest bearing bonds.
Add to that the estimated ¥5tn-worth of Japanese equity purchases that Japan’s Government Pension Investment Fund must carry out to balance its portfolio and, even if equity markets do not fly, they can at least expect support.
But into all this flies another record. Just as the lead characters in The Birds opt to sidle gingerly into the sunset rather than stay to work out what’s going on, foreign investors ditched a record ¥6tn of Japanese shares in the first nine months of the year.
So why have all these market catalysts — along with Japan’s cheapness (on a price-earnings basis) compared to Europe and the US — not served as foreigner-bait?
One answer is that those much fanfared market drivers are turning investors off. Between them, the company buybacks, the BoJ’s appetite for ETFs, and the GPIF’s portfolio ambitions are handsomely offsetting a foreign pullback. They are doing so, though, in a way that many see as destructive to the pricing mechanism of the Tokyo market. When foreign buying was rising to its peak between mid-2013 and mid-2015, non-Japanese funds were 60-70 per cent of market turnover. Foreign funds that went overweight Japan during that time did so with a comfort that came from being a fin on the biggest whale.
A crueller answer, though, is that global funds need their narratives on Japan to be relatively un-nuanced, and, as matters stand, the story is resistant to neat packaging. “Abenomics” as a concept may not have failed but, as a brokers’ rallying cry, it is much less clear than before — and probably too fiddly for the birdbrained.