Korea’s retail investors are ramping up their bets on yen-denominated assets — including a US bond fund — as they seek to gain extra profits from the currency’s sharp fall against the local won.
Inflows into a BlackRock Inc. exchange-traded fund that tracks longer-dated Treasuries — but is priced in yen — are on track to quadruple this quarter from the previous one, running at a net $38 million, according to depository data. Interest was nearly non-existent in the year-ago quarter. Korean individual investors are also taking advantage of the weak yen — down almost 6% against the won this year — to pile into Japan’s red-hot stock market.
For retail traders it makes sense to buy Treasuries in Japan “because the yen is so cheap these days, and if you think the currency would only gain from here, it’s a way to make a double,” said Yang Joo Kyung, head of global fixed income at Kiwoom Asset Management Co. Institutions would prefer to just directly invest in the bonds in US hours, for liquidity and tracking risk reasons, he added.
Treasuries are proving resilient to the hawkish rhetoric from central banks, who are still adamant more interest rate hikes lie ahead to vanquish still-high inflation. The 20-year US yield has fallen back to around 3.80% having hit 4% in May.
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Meanwhile, Japan’s currency is under pressure for a second year against nearly all of its major peers, as the country’s still negative rates means investors favor higher-yielding alternatives. While the Bank of Korea has hiked benchmark rates to 3.5%, the Bank of Japan has yet to budge despite rising price pressures in the country.
Japan has overtaken the US as the most popular foreign destination for Korean retail investors this quarter, as the benchmark Topix soars to a more than three-decade high and Warren Buffett’s bets on Tokyo’s trading houses spark global interest.
Korean investors are on track to be a net buyer of Japanese stocks for the first time in five quarters, according to the depository data analyzed by Bloomberg through June 22. They sold almost $2 billion of US stocks and added almost $100 million worth of Japanese ones.
The weak yen is also a boon for Japan’s export-heavy equity market, with popular stocks for Korean retail investors including an ETF that tracks semiconductor shares, Asics Corp., Marubeni Corp. and Nintendo Co.
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“Because the yen weakened more sharply against the Korean won than the US dollar, some retail investors are expecting FX gains, while taking profit on big US tech stocks after their big jumps,” said Seo Sang-Young, a strategist at Mirae Asset Securities Co. “Because the size of their net-buying is not huge, it remains to be seen whether this trend would continue.”
