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JapanÂ’s Investors urged to put their money in Turkey in Hunt for Assets

Posted on 14 February 2011

Date: 09/02/2009
Japan’s Investors urged to put their money in Turkey in Hunt for Assets

Daiwa SB Investments Ltd. is urging clients to put their money into Brazil, Mexico and Turkey after the yen’s 55 percent gain against their currencies made emerging markets a bargain. A year ago, it wasn’t recommending any developing nation funds.

“A lot of assets have gotten extremely cheap and Japanese investors are looking to park their money somewhere,” said Kenichiro Ikezawa, who oversees about $3 billion as a fund manager at the second-largest brokerage in Tokyo. “Emerging markets including Brazil, Mexico and Turkey look attractive. We would like to invest more in such countries.”

After a year when the yen rallied against 177 currencies, Japan’s biggest money managers say the best is over in the foreign exchange market. The nation’s investors bought 940 billion yen ($10.3 billion) more international stocks and bonds than they sold in the five days to Jan. 31, the seventh week of net purchases, according to the Ministry of Finance.

Japanese companies are also taking advantage of the strengthening currency, spending record amounts on mergers and acquisitions outside the country. The total value of overseas takeovers more than tripled to $76.8 billion last year, according to data compiled by Bloomberg.

The yen rallied 60 percent against the Brazilian real, 55 percent versus the Mexican peso, and 62 percent against the Turkish lira in 2008 as the global economic slump led investors to pull billions of dollars out of emerging-market assets to repay low-cost loans funded in Japan’s currency.

Total Return

Emerging-market assets are appealing to Japanese because those nations suffered only a fraction of the credit-market losses that pushed the U.S., euro region and Japan into recession. In a Jan. 28 report, the International Monetary Fund said while the global economy is likely to shrink 0.5 percent this year, emerging markets will grow an average of 3.4 percent.

“Emerging countries still have the impression of doing better relative to the developed world,” said Kimihiko Tomita, head of foreign exchange in Tokyo at State Street Bank & Trust Co., a unit of the world’s largest money manager for institutions. “Japanese investment trusts and individuals are still interested in emerging markets.”

Brazil is one of the favorites because its benchmark interest rate is 12.75 percent, Tomita said. It takes only 40.52 yen to buy a Brazilian real, down from 69.67 yen as recently as Aug. 6. The country’s interest rate is the highest in the world, accounting for inflation, even after the central bank cut borrowing costs last month for the first time since September.

Foreign Investment

The world’s 10th-largest economy received a record $45.1 billion in foreign direct investment last year, including $8.1 billion in December, more than twice the forecast in a Bloomberg survey of 13 economists.

Japanese investors may earn a 25 percent total return this year on Brazil’s local-currency bonds, should the median forecast for the yen in a Bloomberg survey of analysts prove accurate. Anyone who bought the country’s 10 percent notes due January 2014 at the start of the year would gain 13 percent from the yield on the securities. Yen-based buyers would get another 12 percent from currency appreciation, based on the forecast for 44.34 yen to the real by year-end.

That same bet would have resulted in a loss of 24 percent in 2008.

Emerging-market bonds offer the best way to gain from the yen’s strength, said Hideo Shimomura, who helps oversee the equivalent of $44.3 billion as chief fund manager at Mitsubishi UFJ Asset Management Co., a unit of Japan’s largest bank.

Extra Yield

The extra yield investors demand to own bonds of developing nations instead of Treasuries was at 6.40 percentage points today, up from 1.46 percentage points in the first half of 2007, according to JPMorgan Chase & Co.

“Sovereign bonds in the Middle East, South America, South Africa, and Turkey are popular,” Tokyo-based Shimomura said, forecasting yen may fall as low as 100 to the dollar this year. “Brazil, for example, has relatively sound fundamentals and is likely to keep luring funds pretty easily.”

The yen’s five-month advance versus the dollar leaves more room for appreciation, and emerging-assets will get even cheaper as the global recession deepens, said Jun Fukashiro, a senior fund manager at Toyota Asset Management Co. in Tokyo, who helps oversee about $10 billion in assets.

“We want to wait on investments in emerging markets,” Fukashiro said. “Foreign bonds are attractive given that the global economy is still deteriorating but this isn’t a time to aggressively get into emerging-market debt.”

9 February 9, 2009 00 Bloomberg (Abridged)

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