Investors pile into Japan stocks ahead of BoJ pledge to keep rates low: BAML

[April 26, 2019]   By Tom Arnold

LONDON (Reuters) - Japanese equities sucked in their biggest inflows of cash this week since March 2018 ahead of the Bank of Japan's pledge to keep interest rates at super-low levels for longer - the latest central bank to commit to ultra-loose policy.

Investors plowed $5.4 billion into Japanese equity funds in the week to April 24, BAML strategists said on Friday, citing data from EPFR.

That came before the Japanese central bank on Thursday put a time frame on its forward guidance for the first time, telling investors that it would keep interest rates at super-low levels for at least one more year.

"Flows continue to reflect rising investor conviction that central banks will never raise rates again," strategists at the U.S. bank said in the note.

A rally across European and U.S. stocks this year has in part been fueled by big about-turns by the increasingly dovish European Central Bank and Federal Reserve on interest rates.

The big move into Japanese stocks also came as the Nikkei hit one-year highs ahead of an unprecedented holiday in Japan, with markets shut for six trading days from April 29 to celebrate its new emperor taking the throne.

Global bond funds received inflows of $9.9 billion in the week to April 24, with $4.4 billion leaving global equities, the sixth week of outflows, BAML said.

Cash continued to leave U.S. and European equities, with $6.4 billion flowing out of the United States and another $1.9 billion out of Europe. Emerging markets saw $900 million in outflows.

A man is reflected on an electronic board showing a graph analyzing recent change of Nikkei stock index outside a brokerage in Tokyo, Japan, January 7, 2019. REUTERS/Kim Kyung-Hoon

Investors were seeking to capture growth through $1.3 billion of investments in the technology sector and $800 million in healthcare. That move was at the expense of "value" sectors like financial services and energy, the bank added.

Elsewhere, government bonds saw the largest inflows in three months with $1.9 billion invested in the asset class, while high yield and emerging markets debt funds had their first outflows since Jan. 2.

Debt and currency positions in emerging markets were very crowded, with $250 billion flowing into emerging market debt and equity since February 2016, it said, adding that the current financial problems in Argentina and Turkey were the first signs of U.S. dollar pressures raising the risk of contagion in emerging markets.

(Reporting By Tom Arnold, Editing by Helen Reid and Josephine Mason)

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