Exclusive: Hong Kong-based asset owner involved in $100 million Japanese equity ETF deal

A weaker yen has made Japanese equities more attractive. The investment in the Japan ETF has recorded a 5.3% return as of Wednesday during the holding period since May 19.
Exclusive: Hong Kong-based asset owner involved in $100 million Japanese equity ETF deal

A recent HK$733.7 million ($93.5 million) investment into a Japanese equity exchange-traded fund (ETF) involved a Hong Kong-based asset owner who sought to take advantage of the sharp depreciation of the Japanese yen against the strong dollar, AsianInvestor has learnt.

The investment was made into the ChinaAMC MSCI Japan Hedged to USD ETF, which has broad-based diversification across different sectors. Top holdings include Toyota Motor, Sony, SoftBank, and Nintendo.

As the greenback continues to hold strong on the back of the Federal Reserve’s rate hikes, the Japanese yen has depreciated 18% since July 2021.

AsianInvestor understands that the investment, which was made on May 19, involved the Hong Kong unit of a large international life insurer. According to public data, the purchase of 58 million units was made at a price around HK$12.65, amounting to HK$733.7 million, which was 77% of the total 75.1 million units of the fund as of Wednesday (July 27).

The order was placed via a broker, the Hongkong and Shanghai Banking Corporation (HSBC).

Both HSBC and China Asset Management (ChinaAMC) declined to comment.

The ETF was launched on February 18, 2016. Since inception, its net asset value (NAV) has increased by nearly 80%, but it is down 3.13% year-to-date. The management fee is 0.5% per year and the fund distributes dividends every six months.

The last updated price of the ETF was HK$13.32 on Wednesday (July 27), making the return of the investment around 5.3% so far. During the same period, the iShares MSCI Japan ETF lost 2.1%.

“Currency-hedged ETFs are outperforming unhedged peers due to strong dollars. And a very sharp depreciation of the yen would be good for Japanese equities overall,” an industry insider told AsianInvestor.

“The investor’s decision is mainly due to the weaker yen,” they said.

Usually, life insurers will hedge the risk of foreign currency fluctuation for overseas investment. But as the ETF is already hedged to the US dollar, the investor does not need to do the hedge themselves while ensuring the global diversification purpose, the person said.

ETF products are seen as the proxy of derivatives for life insurers to execute their hedging strategies. For equity investors, equity ETFs investment is also less risky than buying the stock directly, as it spreads the risk by tracking different stocks. Index ETFs that track stocks across different sectors can also help investors diversify their investment.

In the past year since July 2021, TOPIX gained 1.11% while losing 4% year to date. On the contrary, S&P 500 dropped 8.57% since July 2021, slumping 16.11% year to date. Similar losses are seen in European stocks.

Investors start to revisit Japanese stocks recently as the valuation is relatively attractive compared to other developed markets, such as the US.

Meanwhile, the inflation level in Japan is still mild, and the central bank has expressed explicit monetary support in contrast to other central banks that have turned hawkish. Meanwhile, a mild level of inflation is good for an economy like Japan, which has been in a deflationary environment for a long time, said Keiko Kondo, head of multi-asset Investments, Asia at Schroders in its outlook for the second half of 2022.

Large Japanese companies are also able to pass on higher costs while increasing wages. A weaker yen is also supportive of their profits, she added.

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