After retreating to the safety of yen deposits in the wake of the financial crisis, Japan's wealthy investors are slowly regaining their appetite for risk and are eyeing foreign currencies and bonds for higher returns.
Speakers at the Reuters Global Wealth Management Summit said Japanese investors, a force in financial markets due to their $16 trillion in household assets, have gradually started to shift out of low-yielding deposit accounts.
Japanese investors are wary about the outlook for their own financial markets, partly due to uncertainty over policies of the new government, and would likely target bonds and currencies of emerging markets such as Brazil, bankers and analysts said.
High net worth individuals will be shifting into growing areas overseas once it is clear that the (global) economy has started picking up, said Hiroyuki Miyamoto, a senior consultant at Nomura Research Institute.
Funds will be allocated to overseas markets, but they will look for products which they can easily pull out of ... having learned from the experience of the financial crisis.
Finance Ministry data suggests individual Japanese investors stepped up purchases of foreign assets earlier this year.
Investment trusts, similar to mutual funds, have been net buyers of foreign securities since April and have made cumulative net purchases of 2.5 trillion yen in the first nine months of 2009, three times the net buying for all of last year.
That still pales in comparison to peak buying of 5.7 trillion yen in 2007 when the global economy was booming.
Investors are poised to put more money into overseas stocks, currencies and bonds as long as the global economy stays relatively stable.
LACK OF OPTIONS
Part of the attraction of overseas assets stems from a lack of good investment options in Japan, where the currency yields next to nothing and the economic outlook has been muddied by a change in government.
The Democratic Party has spooked some investors with a handful of policy proposals that some see as anti-business or bad for shares. One of the most controversial is a moratorium on debt repayments to help struggling small firms.
Political uncertainty about Japanese politics is clearly one of the key reasons why Japanese stocks are lagging behind stocks in other markets, said Oki Matsumoto, chief executive of Monex Group, Japan's second biggest online broker.
Japan is the world's second-biggest private banking market after the United States and is home to more than 50 percent of all high net-worth individuals -- defined as those with more than $1 million in assets -- in the Asia-Pacific region.
HSBC Holdings , which has opened seven branches in Japan to offer its Premier service targeting those with more than 10 million yen in liquid assets, expects clients to remain conservative but still eager to invest overseas.
There is still a preference to invest in yen deposits, but there's equally a strong preference to invest in deposits of foreign currencies as well, Godfrey Swain, head of HSBC personal finance services in Japan, told the Summit.
Private banks have tailored their approach to meet the needs of a client base that is now more conscious of liquidity. The wealthy saw the value of their portfolios sliced into by the crisis but in many cases found it difficult to cut their losses.
People who were seeking highly leveraged products in the past are investing in products that have high liquidity in the second half of the year, said Masahiko Murakami, president of Lombard Odier Darier Hentsch Trust Japan.
At the same time private banks are starting to see demand returning for higher-yielding products.
SG Private Banking Japan said many of its clients jumped at the chance to invest in a fund product called rock bottom which invested in shares which had fallen sharply in value.
We are now seeing a reversal although it is not drastic, said Alain Simon, head of the Japanese private banking arm of Societe Generale. They are conservative people. They are coming back into investment but in a progressive manner.
(Editing by David Holmes)