Nikko AM to list æemerging JapanÆ ETF

Deregulation has sparked new life into JapanÆs previously somnolent market for exchange-traded funds.
Nikko Asset Management is planning to list an exchange-traded fund targeting æemergingÆ Japanese equities, joining a new trend that has rejuvenated JapanÆs ETF industry.

On 11 March, Nikko will launch the Listed Index Fund S&P Japan Emerging Equity 100, to be listed on the Tokyo Stock Exchange. This tracks 100 of the biggest shares listed on JapanÆs emerging equity markets, including Jasdaq, Mothers, Hercules, Centrex, Ambitious and Q-Board. It is the first ETF tracking the price performance of the S&P Japan Emerging Market 100 Index.

ETFs have become hot in Japan. Although the first ones were introduced in 2001, the market never took off, for three reasons. First, because of the poor performance in Japanese equities. Second, because the regulations were not well conceived: exchanges and regulators licensed multiple fund managers to track the same indices, which didnÆt allow for the volume required by these low-cost index trackers to become profitable businesses, while registration and reporting involved high costs and a lot of paperwork. Third, the leading securities houses that sell stocks and funds were not interested in selling low-margin ETFs.

The local stockmarket may not have recovered but the other two conditions have changed. Deregulation in the form of SeptemberÆs Financial Instruments and Exchange Law has scrapped the restrictions on cross-listings. The advent of online discount brokers has created a distribution platform that embraces ETFs û thus prompting the big players, including Nikko Cordial, to also offer these. And more people are keen to invest for retirement, rather than rely on bank savings deposits.

Nomura Asset Management has taken the lead. It rebranded its line of ETFs as NextFunds and listed three new funds on the Osaka Stock Exchange in late 2007, covering gold stocks, the Shanghai stock exchange and Japanese small caps. Samsung Investments has also listed JapanÆs first international ETF on the Tokyo Stock Exchange, its Kodex product tracking the Kospi 200 Index in South Korea, while others such as State Street Global Advisors are lining up additional cross-listings for this year.

Nikko has been managing ETFs since the sector first opened, including the products tracking the Nikkei 225 and the Topix indices, which together manage Ñ932 billion ($8.7 billion).

For an in-depth analysis of JapanÆs ETF market, see the February 2008 edition of AsianInvestor magazine.
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