Korean investors flock to Japanese stocks for foreign exchange gains

Marubeni Corp. logo [Courtesy of Marubeni]

South Korean retail investors are turning to Japanese stocks amid growing volatility in the domestic and U.S. stock markets.

According to data from the Korea Securities Depository on Wednesday, the outstanding amount of Japanese stock reserves held by Korean investors stood at $2.9 billion as of Monday, which is far below $55 billion of the U.S. It is still the second-largest amount by country and region.

Japanese stocks have attracted greater investment than those of Hong Kong at $2.1 billion, Shanghai, China at $900 million and Europe at $600 million.

Local investors net bought Japanese stocks worth $5.14 million between April 10 and May 9, showing a contrast with the selling spree at the beginning of this year.

One of the reasons behind the buoyant demand for Japanese stocks is Warren Buffet, chairman and chief executive officer of multinational conglomerate Berkshire Hathaway Inc., who recently increased investment in Japanese trading stocks.

Investors are also upbeat about foreign exchange gains amid the declining yen on zero interest rates.

Data, in the meantime, showed that Marubeni Corp., one of Japan’s leading trading houses, had the largest purchase of $4.17 million over the last month, followed by Nintendo Co. at $4.12 million, iShares 20-year U.S. Treasury Bond Exchange-Traded Fund (ETF) at $4.1 million, and Sumitomo Metal Mining Co. at $2.52 million.

Marubeni rose to the top as Buffet purchased the stock. Itochu Corp. was also high on the list among Japanese trading companies.

Shares of Marubeni and Itochu rose 11 percent and 14.99 percent, respectively, as Buffett recently said that Japanese trading companies will “survive beyond 100 years.”

Nintendo, a Japanese gaming company, drew a large amount of investment possibly on its familiarity among Korean investors.

Shares of Nintendo rose more than 10 percent in the past month on the back of the box office success of “Super Mario Bros. Movie,” an animated film based on Nintendo’s Mario video game franchise.

Nintendo co. logo [Courtesy of Nintendo]

Sumitomo Mine is Japan’s leading cathode materials manufacturer. Investors have started extending their purchase of cathode stocks to the Japanese market as cathode shares in the Korean stock market soared. Retail investors purchased Sumitomo Mine shares worth $2.52 million in one month.

They also massively purchased ETFs listed in Japan that invest in U.S. products.

ETFs that track the 20-year U.S. Treasury yield and the S&P 500 index were ranked third and sixth by net purchases, respectively. They are worth $4.1 million and $1.63 million each.

The U.S. Treasury ETF can also be purchased on the Korean or the U.S stock markets, but domestic investors went all the way to Japan in hopes of gaining from exchange rate differences.

Korean investors have been increasing investment in U.S. dollar products in Japan since last year as the yen weakened against the greenback.

The Japanese stock market has turned strong.

Japan’s Nikkei 225 rose 5.83 percent, the highest in a year and four months since January last year while Nasdaq and Kospi remained stagnant during the period.

Large-cap stocks such as those of general trading companies and tech stocks led the rally. Analysts say that investor sentiment in high-risk assets improved and foreign investment flocked in to drive up the stock prices as Kazuo Ueda, new governor of the Bank of Japan, unveiled his commitment to continue monetary easing.

Japan’s reopening-related stocks are also expected to benefit from global reopening of borders as the World Health Organization has lifted Covid-19 international travel-related health measures.

“Stocks of Japanese IT companies and manufacturing firms and companies benefitting from the strong yen will be preferred by the investors until the second half of this year,” said Choi Bo-won, an analyst at Korea Investment & Securities Co.

“However, in the first half, government bonds and reopening-related companies that are less affected by the exchange rates and likely to benefit from increased foreign travel and are highly likely to remain attractive.”

Funds investing in Japanese stocks in Korea are also delivering high returns.

According to financial data tracker FnGuide Inc., the return on Japan funds rose by an average of 13.67 percent this year, outperforming those of Europe at 11.72 percent, Brazil at 4.24 percent, and India at 4.11 percent.