June 26, 2018 / 8:35 AM / 22 days ago

Foreigners turn net sellers of Japanese equities in May

(Reuters) - Foreigners turned net sellers of Japanese stocks in May as rising U.S. yields and escalating trade tension between the United States and China, soured investor appetite for the country’s equity markets.

People walk past an electronic board showing exchange rate between Japanese Yen and U.S. Dollar outside a brokerage at a business district in Tokyo, Japan August 9, 2017. REUTERS/Kim Kyung-Hoon

Overseas investors sold a net 13 billion yen ($118.52 million) worth of Japanese stocks, including both cash equities and futures in the last month after their purchases of about 1.79 billion yen in April, data compiled from Japanese stock exchanges showed.

Foreign flows into Japan: reut.rs/2Mm63eW

Weekly flows: reut.rs/2MrjhXY

“Factors that warrant caution (for Japanese equities) are a rise in US long-term interest rates, geopolitical risks, and the risk of trade friction, but we see no need to be overly pessimistic or optimistic,” said Tomochika Kitaoka, strategist at Daiwa Securities said in a report.

“We think foreign investors who have sold Japanese shares will turn to buying, but for April-December we only expect buying equivalent to around 50 percent of their net share sales of 9 trillion yen during January-March.”

In May, while foreign investors bought stock futures such as Nikkei futures JNIc1 and Topix futures JTIc1, they were a net sellers of cash equities.

That suggests buying in May was driven by short-term players such as hedge funds that typically trade in futures while longer-term investors stayed away from the markets due to ongoing worries about trade frictions between the United States, China and the European Union, analysts said.

The broader market .TOPX is still down about 5 percent this year, due to heavy foreign selling in the first quarter of 2018.

Total foreign outflows stood at 6.45 trillion yen in the first five months of this year, the data showed.

An escalation of trade tensions this month could affect Japanese stock markets and capital flows further, analysts said.

Some analysts are also concerned by a dimmer profit outlook for Japanese firms this year.

Thomson Reuters data showed Japan’s large and mid-cap firms’ net profits are expected to grow 4.8 percent this year, which is the lowest in Asia.

Asia earnings estimates and valuations: reut.rs/2M3AtCx

“Japan’s consensus growth outlook is weaker than other countries,” J.P. Morgan said in a note this month.

Reporting By Patturaja Murugaboopathy; Editing by Hideyuki Sano and Simon Cameron-Moore

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