Market Scramble: Iranian fund sets sights on Japan stocks
Tech, market liquidity appeal to emerging-economy government funds
SHINYA OSHINO, Nikkei staff writer
TOKYO -- With the grip of Western sanctions easing, Iran is ready to ramp up economic activities overseas, including investment in the Japanese stock market.
The state-owned Iran Foreign Investment Co. is armed with assets of some $5 billion. The fund has targeted mainly the financial and resource sectors in Europe, the Middle East and Africa but is now looking at Japan, according to Director of Investment Vahid Sharif.
The sudden interest in Japanese stocks is not just because of their promise for investment returns. The potential of unique Japanese technologies is appealing to Iran, which is in dire need of revitalizing industry. Internet connectivity in Iran is poor, hurt by years of economic sanctions from the West, and air pollution is severe. The nation is wasting energy, Sharif said.
Japanese health care stocks are also seen as promising. Regardless of the uncertainty surrounding U.S. President Donald Trump's Middle Eastern policies, Japan and Iran have built long-standing good relations through crude oil trade and other avenues, Sharif said. IFIC is already in talks with major securities brokerages here and will soon decide on investment targets.
Attention from Asia, Europe
The growing interest in Japanese equities is not limited to Iran. Soichiro Monji of Daiwa SB Investments felt it from Southeast Asian government funds when he visited their officials in early March. "They are looking for opportunities to invest," he said.
A source at a foreign-affiliated asset management company also noted that European government funds have raised their weightings of Japanese equities since February and that inquiries have recently been coming in from Asia.
Government funds' assets under management are growing worldwide. Such assets doubled from 2009 to $6.59 trillion as of March, according to research company Preqin. For 2017, stocks in listed companies are to account for 79% of their asset portfolios, surpassing investment in real estate and infrastructure.
Low interest rates worldwide are driving many government funds to put assets into equities. "The highly liquid Japanese market is convenient for government funds, which invest at a certain scale," said Chihiro Ota of SMBC Nikko Securities.
Stocks with large market capitalizations, such as Topix Core30 index components, are largely favored. Fanuc has risen 12.97% since the end of 2016, against the 2.58% drop by the Nikkei Stock Average. Keyence has gained 8.78%, and Shin-Etsu Chemical 3.23%.
Government funds' assets are expected to continue increasing, mainly in emerging countries. South Korea, Vietnam, Brazil and Turkey are among those that have set up such funds. Sovereign funds, with their long-term investment horizons, provide valuable support for the directionless Japanese stock market.