Japan’s yen is unstoppable at the moment, climbing to its highest level against the dollar since 2014 in Asian trade on Monday.
The Japanese stock market, which is dependent on companies’ ability to export, has taken a beating as a result and foreign investors aren’t hanging around to wait for the yen to weaken.
Foreign investors have sold as much as 10.8 trillion yen ($102 billion) of stocks since June 2015, when holdings were at their peak, according to CLSA’s Japan analyst Nicholas Smith.
Foreigners account for about 70% of the traded value of Japanese stocks and have sold 43% of the Japanese stocks they bought since Prime Minister Shinzo Abe came to power in 2012, according to CLSA.
BlackRock, one of the world’s biggest asset managers, is reducing its position in Japan, according to Bloomberg News, with foreign traders pulling out of Japanese stocks for 13 straight weeks.
This is bad news for Japan because local investors don’t trade much, so the foreign funds play a big role in driving the stock market forward.
Here’s Smith (emphasis ours):
Domestic institutional money is overwhelmingly passive in character. So when foreigners, who account for typically 70% of traded value, repatriate their money, there’s no pool of capital with the experience and conviction to decide the price is right. Stocks generally don’t recover till the foreigners returns.
And here’s the chart: