Japanese Retail Investors Pile Billions Into Indian Equities

(Bloomberg) -- Japan’s retail investors are pouring money into Indian stocks amid bets the nation will be the next China.

Total assets of India equity-focused investment trusts in Japan grew 11%, or ¥237 billion ($1.6 billion), in January, according to data compiled by Bloomberg. Factoring in the gains of Indian stocks on the yen basis last month, the figures suggest inflows of about ¥140 billion into India equity funds, while Japanese stock funds had almost no net inflows. 

The investment into Indian equities extended the country’s lead over its peers as Japan’s favorite emerging stock market, partly thanks to tax-free investment accounts that started this year. Holdings of India’s stocks rose more than those of any other developing economy last year, according to Bloomberg analysis of government data that factor in net purchases and asset prices. 

“Indian stocks are attracting interest as a theme for economic growth, as the next China,” said Daiju Aoki, regional chief investment officer at UBS SuMi Trust Wealth Management Co. in Tokyo. “Client interest is more about India as a whole rather than individual companies.”

In contrast, flows into Chinese shares dropped the most among 14 emerging markets that are covered by Japan’s data on international investment positions. The figures include positions of institutional and retail investors.

The shift in money from Japan, the world’s biggest creditor, comes as China grapples with the collapse of a property bubble and deflation — the economic malaise that Japan suffered for decades.

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India’s Nifty 50 Index was almost flat in local currency terms last month but was up 4.2% in yen, due to the Japanese currency’s decline. The Shanghai Composite Index and the Hang Seng Index fell 3.5% and 5.7% respectively for yen-based investors. 

Economists forecast India’s year-on-year economic growth will average more than 6% at least until the second quarter of 2025, while China’s is expected to remain below 5% during this period. Demographics also favor India with its population projected to increase 17% by 2050 compared with a decline of 7.9% in that in China, according to a report from the United Nations.

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